The performances of gold and silver in the spot and futures market are largely influenced by some common factors such as international and domestic demand and their future growth. However, certain events in the previous year such as demonetisation, the US elections and other international matters are also expected to have major roles in the performance of these commodities in 2017.
Here is a look at both these precious metals to see how they may perform in the year ahead.
The Case for Silver:
Experts believe that silver is going to be the new gold in 2017. This is because of certain positive economic and industrial aspects that will push demand and prices upwards. Some of these factors are listed below.
· The demand for silver is going to rise because of the emerging solar panels and electronics sectors. Also, as the material is used in more industries than gold, experts believe a resurgence in industrial growth will increase silver demand and prices will move northwards.
· Silver registered a growth of 16% in the domestic market last year. MCX silver futures moved from Rs. 33,335/kg at the beginning of the year to Rs. 38,949/kg after touching a high of Rs. 48,611/kg. It is expected to move up strongly in the coming months.
· Experts say that investors should look at a medium to long-term investment horizon when they opt for silver. The demand for silver is supposed to continue rising in 2017. Since it has already outperformed gold in 2016, this growth streak means that investors can take advantage of it to get better returns.
· One of the reasons for the expected upswing in the performance of silver is the fact that both gold and silver prices move in cycles. As silver has been moving in a lower price range since its highs in 2011, there are high chances that the commodity will perform much better in 2017.
The Case for Gold:
The production of gold has been on the rise but consumption has been on a decline. The demand in traditional markets such as India and China has been on a downswing, and a strong dollar has proved more lucrative. Also, in case of India, the people look at gold more as an item of jewellery rather than as an investment. Some factors that will influence price are listed below:
· The industry has seen a lot of ups and downs in the past year. The 41-day jewellers’ strike over excise duty resulted in huge loss of demand and revenue. Further, restrictions such as PAN card requirements for purchases of more than Rs. 2 lakh had their repercussions as well.
· Experts believe that with the stock market likely to move up in 2017, gold can lose its short term appeal. They opine that the market was driven by fear in 2016 that caused gold prices to rally rapidly but the situation has changed over the past few months and gold is likely to find lesser takers this year.
· Demonetisation may have reduced the gold demand in the country for a couple of quarters but experts believe that it will be back on track sooner than later. Another major reason for the long-term strength of gold lies in its convenience. No currency has the long-term stability and security as compared to this precious metal. It will grow regardless of the industrial and economic environment.
· Some global cues that may affect gold prices and see them perform better than expected in 2017 are the diverging interest rates among developed markets. The US Fed has announced a rate hike and may increase it again this year while central banks of Japan and European Union are keeping rates at a low. The divergence will cause uncertainties and investors may abide by the yellow metal unless a strong dollar counters this possible trend.
No one can predict the international and domestic financial markets but experts believe that investors looking at a 3-year time frame should certainly invest in silver whereas individuals with a longer window should choose gold.