Gold, Silver Poised for Rally as US Midterm Fallout Hits Dollar
Kotak Neo's Anindya Banerjee predicts a surge in gold and silver prices as US political uncertainty weakens the dollar and oil risk premiums ease.
The global commodity and currency markets are undergoing a dramatic transformation following the US midterm elections. According to Anindya Banerjee, Head of Commodities Research at Kotak Neo, a shift in market sentiment is triggering a decline in oil risk premiums and a weakening US dollar, creating a perfect storm for a gold and silver rally.
Oil Markets: The War Premium Fades, but Risks Linger
Brent crude has seen a dip, sliding toward USD 93 per barrel. This decline is largely attributed to the market pricing out the immediate threat of a massive geopolitical escalation. However, Banerjee warns that while the "immediate war premium" has vanished, structural supply vulnerabilities are still very much present.
Key risk factors that continue to haunt the oil market include:
- The ongoing logjam in West Asia, particularly around the Strait of Hormuz.
- Continued threats from the Houthis in the Red Sea region.
- Ukraine's persistent attacks on Russian refinery complexes.
Because of these unresolved supply risks, Banerjee believes it will be difficult for oil to drop below the USD 80 to USD 85 range, positioning USD 85 as a strong baseline.
The Indian Rupee and the 'Washington Effect'
Political developments in Washington are providing unexpected support for the Indian rupee. The US Dollar Index has hit a five-week low, which typically opens the door for emerging market currencies to strengthen and encourages foreign equity inflows.
Banerjee suggests that increasing political uncertainty in America, coupled with global profit-booking in mega-cap AI and technology stocks, makes India a highly attractive alternative for investors. Since India is viewed as a well-diversified economy that exists beyond the AI bubble, it is poised to attract significant capital flows.
Currently, the USD/INR is trading in a narrowed range of 94–97. There is a possibility the rupee could strengthen to 92 if foreign inflows accelerate and the Reserve Bank of India (RBI) limits its aggressive purchase of dollars.
Precious Metals: A Golden Opportunity?
With the holiday season arriving and US interest rate expectations stabilizing, precious metals are gaining significant momentum. The rising political risk premium in the US is creating a chaotic environment for the dollar, which historically acts as a catalyst for gold and silver.
Banerjee notes that speculative long positions have mostly been cleared, leaving the market "light" and ready for an upward surge. He predicts the following targets on the Multi Commodity Exchange (MCX):
- Gold: Could rally toward Rs 1,55,000–1,56,000 per 10 grams.
- Silver: Could test the Rs 2,05,000–2,10,000 per kg mark.
RBI and Inflationary Pressures
Turning to domestic monetary policy, the expert indicated that imported inflation could still play a role. To combat these pressures, the RBI might implement one final 25-basis-point rate hike before entering a sustained pause in its monetary tightening cycle.