EDITOR NOTE: Asian metals analysts forecast high volatility in metals in the coming months. The author below outlines two scenarios that may define the near-term future of gold and silver prices. Both scenarios rest on one thing: the vaccine. Putting things into context, the author’s perspective is coming from India, a country that has its own unique healthcare and monetary challenges. For us here in the US, another major factor we have to consider is the state of the dollar and its purchasing power. So, read the two scenarios put forth in this article against the backdrop of high inflation. Perhaps, that’ll give you a clearer perspective on gold and silver, and how much of it you should own.
GOLD AND SILVER 2021 DIWALI FORECAST
Diwali Greetings to all. Comex gold futures rose twenty four percent since last diwali. Comex silver future rose thirty five percent in the same period. MCX Gold futures have risen around thirty one percent between between last diwali and as we near diwali of 2020. MCX silver futures have risen around thirty four percent in the same period. This massive investment return in gold and silver may or may continue in 2021 Diwali.
Predicting 2021 Diwali gold and silver forecast will be the toughest for me since I started “Insignia Consultants” in 2003. The reason is that corona virus and the corona virus vaccine.
What happened between 2019 Diwali and as we near 2020 Diwali
- Coronavirus or covid infection is the key reason for gold and silver price to rise in the last one year.
- Central banks were net buyers of gold except for October 2020.
- Gold investment demand and silver investment demand saw a significant rise from every one.
- Negative interest rates from most central banks were the theme. Central banks cut interest rates below zero as a means to get over coronavirus induced global lockdown and social distancing norms.
- Bond yields crashed worldwide. US dollar Index sunk.
- Stimulus measures and additional stimulus measures were announced by almost every central bank. The amount of stimulus was more or less unlimited. Excessive global liquidity resulted in rise in all asset class (except bond yield).
- Tensions between Iran and US at the beginning of the year started the gold price rise to stratosphere this year.
- MCX Silver price first crashed in March 2020 and reached a multiyear low of Rs.33580. Thereafter silver more than doubled and a reached a new alltime high of Rs.77949 in early August.
- The fall from the high in gold and silver began in early August was when Russia announced success in its Sputnik vaccine in coronavirus. In November 2020 Pfizer announced success in launching coronavirus vaccine as well.
There will be two parts in my price forecast (1) Coronavirus vaccine is available worldwide by the first quarter of 2021. World starts to become near normal from the second quarter of next year. (2) Some of the vaccine fail in the long term and cause massive side effects and even death.
Covid vaccine will either be a big hit or a big miss are the only two possibilities. Nations are approving covid vaccine due to an emergency situation. Under normal circumstances vaccine for humans takes nearly a year and more to get an approval. Pfizer says that its covid vaccine is over ninety percent affective. Pfizer and other potential successful covid vaccine makers have not listed the circumstances where it is ineffective and may even cause deaths. Questions remains over corona virus vaccine long term effectiveness?
Gold and silver will be very volatile. The pace of rise will vary every month. Month on month returns can be negative in some months over the next twelve months.
Circumstance1: Coronavirus vaccine is available worldwide by the first quarter of 2021. World starts to become near normal from the second quarter of next year.
- Long term bullish factors (other than coronavirus related factors) for gold have only increased this year. Covid vaccine can result in a very sharp correction first and then make way for a new all-time high in both gold and silver.
- De-dollarization will increase over the next one year. The pace of de-dollarization will increase next year.
- Trade war between China and rest of the world will continue USA under a new president Biden will not change the overall theme of trade war. China’s counter retaliation will need to be closely watched. Companies shifting production away from China will not be taken lightly by Chinese leaders.
- Protectionism will increase. Protectionist schemes like the Indian “Aatmanirbhar bharat” (self sufficient India) will be there in every nation. Nations will try to be self sufficient as much as they can.
- Hyper growth and hyper inflation will be there once the covid vaccine reaches the masses. Hyper inflation will always be bullish for gold. Covid has resulted inflation rising in every nation even without demand.
- Gold ETF will continue to see higher inflows.
- Very sharp rise in global bond yield can result in a selloff in gold and silver.
- Central banks were net sellers of gold in October 2020. Central bank buying and selling of gold will dictate long term trend. In my view October selling of gold by central banks was just a one way move to adjust a nation’s balance sheet. Once global growth rises sharply central banks will increase their gold reserves away from US dollar and paper currencies. However any significant gold sale by central banks will cause a sharp selloff in gold.
- Geopolitics. USA relations with Turkey, Iran and developments in South China sea can affect gold price. China and its relation with India and Taiwan. I do not think North Korea will have any impact unless there is a war in Korean peninsula.
- Energy price trend will dictate the trend of inflation globally.
- Central bank will not increase interest rates even if world nears normal. World will experience excess liquidity even after a vaccine. Some of the surplus liquidity will be invested in gold.
Circumstance2: Some of the vaccine fail in the long term and cause massive side effects and even death.
Gold and silver price will reach stratosphere if long term side dangerous effects is there by a few vaccine makers. Significant deaths (after covid vaccination) will also cause gold and silver to repeat 2020 in 2021.
MCX Gold future technical price forecast for 2021 Diwali (current price Rs.50279)
- 200 day moving average around Rs.47629 is the key long term support.
- Average closing price since last Diwali is around Rs.45284.
- 2020 average closing price is Rs.46871.
- New all time high made in August Rs.56191.
- VIEW TILL 2021 DIWALI: Gold has to trade over Rs.45284-Rs.46871 –Rs.47629 zone to rise to Rs.59714 and Rs.64754 and Rs.68890. Bearish trend ingold will be there only if gold prices fall below Rs.47269 (two hundred day moving average).
- Under the current global situation, gold and any asset (which is long term bullish) is vulnerable to a ten percent price correction to fifteen percent price correction.
- My experience is that gold has managed to trade over two hundred day moving average in the past decade. I expect gold futures to trade over 200 day MA for the next one year.
- SHOULD ONE INVEST IN GOLD FOR DIWALI OF 2021 AT CURRENT PRICE: One can invest in very small amounts at current price. One can start aggressive investing on any three percent or more fall.
- If you have already invested in physical gold at price over Rs.54000, then you need not worry. You will get a decent profit over the next twelve months.
Silver future technical price forecast for 2021 Diwali (current price Rs.62538)
- 200 day moving average around Rs.53346 is the key long term support.
- 100 day moving average around Rs.61937 is the price to watch.
- Average closing price since last Diwali is around Rs.50992.
- 2020 average closing price is Rs.52869.
- New all time high made in August Rs.77949.
- VIEW TILL 2021 DIWALI: Silver has to trade over Rs.52069-Rs.52869-Rs.53346 zone to rise to Rs.73012 and Rs.84725. (i) Silver will move into a very long term bearish zone only if it trades below Rs.52069. (ii) Silver will rise very quickly and target Rs.106910 if and only if it trades over Rs.73012 for three consecutive weeks.
- Silver will be very volatile for the next twelve months. Thirty percent one way price swings are possible. I am trying to tell you is that I will not be surprised if silver prices fall thirty percent and then rise two hundred percent or even three hundred percent in the next one year. Such is the nature of silver.
- Use any fifteen percent fall and more from here to invest for next year and Diwali of 2021.
- SHOULD ONE INVEST IN SILVER FOR DIWALI OF 2021 AT CURRENT PRICE: Silver has to be just thirty percent of your precious metals portfolio. Rest seventy percent has to be gold. I prefer to start investing in silver around Rs.56000 and later average on any ten percent and more price fall.
- If you have already invested in physical silver at price over Rs.70000, then you to average it out or buy more if silver price test 53000 and below. You should not worry.
Where is the Rupee headed against the US dollar
- 200 day moving average around 73.5375 is the key long term resistance.
- One hundred week moving average is 72.1225 is the initial support.
- Long term support is at two hundred month moving average around 69.3650.
- Rupee (usdinr) view: Rupee crash only if it trades below 72.1225 to 69.3650 and 68.5500.
Direction of the rupee will be dependent on coronavirus infection trend in India. In 2020 currency trend has been dependent on covid trend in that nation. A covid vaccine for the masses in India will result in rupee falling to 68.5500 and more 65.5850, However if covid continues to play havoc in India then will be weaken to 79.4050 and 82.2775 in the next one year.
Comex gold price forecast for Diwali 2021 (December future current price: $1868.50)
- 200 day moving average around $1804.80 is the key long term support.
- 100 day moving average around $1916.40 is the immediate resistance.
- Fifty week moving average is at $1755.80.
- 2020 daily average closing price is $1766.66.
- VIEW TILL 2021 DIWALI: Gold has to trade over $1755.80 to rise to $2199.10 and $2518.20. Gold will crash only if it trades below $1755.80 to $1560.70.
- There has to be credible reasons for gold price to fall below $1755.80 like really effective covid vaccine for the masses, end to global trade war among other factors.
- One should investment in comex gold at current price and invest more in any $125 and more fall.
- Under the worst case scenario, I do not foresee gold prices falling below $1560.70. There is a sixteen percent downside risk from current price in gold and a thirty percent upside chance in gold over the next twelve months.
Comex silver price forecast for Diwali 2021 (December future current price: $2433.50)
- 200 day moving average around $2113.80 is the key long term support.
- 100 day moving average around $2537.10 is the immediate resistance.
- Fifty week moving average is at $1989.60.
- 2020 daily average closing price is $2007.10
- VIEW TILL 2021 DIWALI: Silver has to trade over $1989.60 for the next twelve months to rise to $3278.70 and $3760.80.Key resistance is at $2796.00. Silver has to break and trade over $2796 for a few weeks if it has to target $3278.70. However failure to break and trade over $2796 till Christmas will result in a sell off to $2113.80 (two hundred moving average) and may be even $1989.60.
- There will be very wild price moves in silver.
- Silver is not for low hearted trader and investor as well.
One needs to consider the downside risk before investing not just in precious metals but every investment. In 2014, I had asked a close relative to invest in physical silver around Rs.53000. After five year their silver investing price came and they exited silver at 62000. Had they invested in gold over silver, their investment would have doubled in six years. This can happen with any investment as too much money is chasing too few quality investments. Gold and silver price trend is all about investment demand.
Silver is long term fundamentally bullish due to use on solar panels, 5G technology and as air purifier among other uses. Silver is very easy to manipulate and does not require big money. JP Morgan and other hedge funds have all manipulated silver price for years and got away with fine which is peanuts. Hedge funds will continue to manipulate silver. Central banks do not to invest in physical silver. Since I am also bullish on industrial metals in 2021, I expect silver price to rise as well.
One again it is very difficult to predict covid vaccine and its impact on global economy for next year. Gold and silver price will be very volatile. If you are a long term investors you need not loose your sleep on your gold and silver investment. Day traders, jobbers and very short term investors need to be cautious.
Originally posted on GoldSeek.com