Summary
Summary
Gold and silver have completed a powerful central-bank-driven bull run, with gold now near fair value after a ~50% YTD rally. Global liquidity remains high but growth is slowing, while India’s nominal GDP has moderated to 9–10%. DSP recommends reducing gold overweight to neutral, staying selectively positive on silver, and maintaining a valuation-anchored stance in equities—favoring large caps and quality balance sheets over mid and small caps.
Global and Macro View
- Precious metal gains stem from supply deficits and record central-bank buying (~1,000 tons/year) rather than inflation or USD weakness.
- Global liquidity abundant, but nominal growth slowing; India’s nominal GDP growth 9–10% vs 12–14% pre-2010.
- Tariffs and weak global trade weigh on exports; inflation low and contained.
- India remains stable but growth momentum softer relative to previous cycles.
Gold and Silver Outlook
- Fair-value estimates:
– Gold: US $ 3,166–4,500 (midpoint ≈ 3,825) – Silver: US $ 64 (based on gold–silver ratio). - Gold at fair value for only the third time since 1971; 10-year CAGR ≈ 13%, matching equity returns.
- YTD gold +50% (best since 1980s); driven mainly by central-bank accumulation.
- If central-bank buying eases, price momentum likely to moderate.
Implication:
– Existing investors: Trim 5–10% exposure near US $ 3,860–4,000.
– New investors: Prefer SIPs/staggered entry, not lump-sum.
– Gold’s rolling CAGR (~32%) signals limited upside; risk of 20%+ correction if >$ 4,500.
Silver View
- Still below mid-point fair value (~US $ 64), but upside narrowing after 50% rally.
- Partial profit-taking advised near US $ 53–64; maintain light overweight.
- Industrial demand (EVs, solar, electronics) intact; low input cost (<1% of output).
Equity & Market Outlook
- India nominal GDP ~9–10%, exports weak; mid/small-cap valuations stretched amid slowing earnings (<10%).
- Large caps better placed; SMID momentum peaked (Sep ’24).
- VIX at multi-year low → market complacency; leverage rising via MTF & ESOP funding (~₹1 L cr).
- IT sector: underperformed Nasdaq (−48% 3Y CAGR); attractive contrarian entry if 15% correction.
- Financials: NIMs stable; credit growth bottoming; policy aiding MSME/retail.
- Consumption: GST & tax cuts supportive, but recovery lagging.
Risks
- Slowdown in central-bank gold purchases may cap prices.
- High SMID valuations with weak earnings.
- Leverage in margin/ESOP funding could trigger sharper drawdowns.
- Nominal growth and exports remain key drags on corporate momentum.
Opportunities
- Rotate from overweight to equal-weight gold; keep modest silver allocation as diversifier.
- Prefer large-cap equities for stability and valuation comfort.
- IT sector re-entry theme at lower levels on high ROE and margin strength.
- Balanced portfolios combining quality debt, blue-chip equities, and moderate gold exposure best suited for FY25–26.
Key Takeaway
Gold’s bull cycle has matured — time to be conservative, not greedy.
India’s growth remains steady but nominal pace soft.
Maintain equal-weight gold, selective silver, and a large-cap, quality-focused equity stance within diversified multi-asset portfolios for 2025–26.
