Motilal Oswal expects silver to touch ₹1,25,000 in 12-15 months; recommends ’buy on dips’ strategy

Domestic brokerage house Motilal Oswal Financial Services (MOFSL) has revised its target price for silver, recommending a 'buy on dips' strategy. In a recent note, MOFSL set a new target price of ₹1,25,000 from a 12-15 month perspective, reflecting increased confidence in the precious metal’s performance.

Silver, traditionally considered a slow mover, has shown remarkable agility this year. After a steady start, the metal has gained 30 percent year-to-date (YTD). MOFSL remarked that silver appears poised to outpace gold.

"It looks set to win the gold–silver race, despite wearing rabbit shoes," MOFSL said.

The brokerage noted that while silver has seen over 30 percent gains in recent months, it is likely to experience some profit booking at intervals. However, MOFSL views any significant dips as buying opportunities. The key support levels are identified near ₹86,000-86,500. With this in mind, MOFSL has revised its domestic target price from ₹1,00,000 to ₹1,25,000 and set a Comex target of $40 for a 12-15 month horizon.

MOFSL highlights that the ambiguity surrounding the Federal Reserve's interest rate cuts has kept investors cautious. In a recent Fed meeting, interest rates were kept unchanged, adding to the uncertainty. Additionally, weak economic data from the US has bolstered the appeal of precious metals.

Geopolitical tensions have also influenced market dynamics, providing intermittent shocks. Domestic silver imports in 2024 have surged significantly, reflecting increased demand. While ETF flows remain modest, speculative buying has helped cushion silver prices. According to the Silver Institute, the market balance for silver is expected to remain in deficit, which could further support price increases.

The brokerage has also anticipated that positive economic signals from China, particularly regarding industrial demand, could further bolster silver prices. Given the current market conditions and the underlying factors, the brokerage firm remains bullish on silver, recommending investors to capitalise on any dips.

The brokerage lists key factors and trends that will impact silver prices going ahead:

Inflation and Growth: MOFSL noted that central banks worldwide have faced intense scrutiny over the past few years as they navigate the dual challenges of managing inflation and fostering economic growth. Since inflation spiked in 2021, central banks have implemented various measures, including substantial interest rate hikes, to control inflationary pressures. These efforts have begun to bear fruit, but recent economic indicators suggest a potential weakening, necessitating a careful balancing act between inflation control and economic growth.

Central Bank Actions: The U.S. Federal Reserve (Fed) raised interest rates from near zero to approximately 5% within a year and has maintained this level throughout 2024. With inflationary concerns easing, market participants anticipate potential rate cuts. However, Fed policymakers aim to reach their 2% inflation target before considering such measures, stated MOFSL. Fed Chairman Jerome Powell indicated that significant reductions in inflation or economic growth could trigger a rate-cut cycle. Initially, multiple rate cuts were expected in 2024, but this forecast has since been revised to just one potential cut, it added. The CME Fed Watch Tool currently suggests a 70% chance of a rate cut in the September Fed meeting.

Global Impacts: In Europe, the European Central Bank (ECB) recently implemented a hawkish 25 basis point rate cut, reflecting ongoing concerns about economic stability. Despite these moves, the International Monetary Fund (IMF) projects steady growth for 2024 and 2025, with the U.S. GDP reported at 1.4%. The Fed's challenge now lies in maintaining a delicate balance between controlling inflation and supporting growth, noted the brokerage.

China's Influence on Silver: China, a major consumer and producer of industrial metals, significantly impacts the silver market. The country's extended lockdown during the pandemic severely hampered economic activities, particularly in the property sector. In the first half of 2024, Chinese property investments fell by approximately 10%. Despite these challenges, there is optimism for economic recovery, supported by potential liquidity measures from the People's Bank of China (PBoC) and increased commodity imports. China's low inflation rate provides ample room for rate cuts, which could further stimulate the economy and support silver prices, it explained.

Geopolitical Tensions: Geopolitical tensions have historically supported safe-haven assets like silver. The ongoing conflicts, including the Russia-Ukraine war and tensions in the Middle East, continue to influence market dynamics. Additionally, the U.S. election year adds another layer of economic uncertainty, potentially boosting the appeal of safe-haven investments. Any significant geopolitical events or changes in the political landscape could further increase market volatility and drive demand for precious metals, stated MOFSL.

Silver Demand and Supply Dynamics: The Silver Institute forecasts a 2% increase in total silver demand from 2023 to 2024, reaching approximately 1,219 tonnes. Industrial demand, expected to be the highest at around 710.9 tonnes, is projected to grow by 8.5% since 2023 and 40% since the pandemic. Conversely, mine production is expected to decrease by 1% to 823.5 tonnes in 2024 due to challenges in mining operations, leading to supply constraints.

Manav Modi, Senior Analyst at Motilal Oswal Financial Services Ltd, highlights that demand for silver is set to exceed supply for the fourth consecutive year in 2024. This ongoing deficit suggests higher prices as demand outpaces supply. Additionally, the high domestic prices appear to disincentivise recycling, further limiting supply growth.

In conclusion, the brokerage noted that for silver, the anticipated supply deficits and robust industrial demand suggest a bullish outlook, with potential price increases driven by continued market imbalances. Silver's strong performance YTD and the favorable conditions suggest it could continue to outperform in the coming months. Investors should stay attuned to central bank policies and global economic developments to navigate this evolving landscape effectively, it recommended.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.