Gold and silver prices correct ahead of Diwali: Buying opportunity or a trap?

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ET CONTRIBUTORS

Gold has retreated from record highs of around $5,600 per ounce towards $3,900, while silver has also experienced significant volatility, correcting towards $50 per ounce. Rising US bond yields, movements in the dollar, inflation concerns and profit booking have contributed to the recent weakness.

However, a correction after a strong rally does not necessarily indicate the end of a bull market. Equally, a significant fall from record highs does not guarantee an immediate recovery. The distinction between short-term price movements and long-term fundamentals will be critical for investors.

What is driving the precious metals outlook?

Gold continues to enjoy strong structural support from central bank purchases, geopolitical uncertainty and growing concerns around global debt, fiscal deficits and currency stability. Central banks across the world have increasingly viewed gold as an important reserve asset, reinforcing its long-term investment appeal.

However, its near-term trajectory will largely depend on the US Federal Reserve’s monetary policy, real interest rates and dollar movements. Any moderation in interest rates or weakening of the dollar could provide fresh momentum to gold prices. On the other hand, persistently elevated yields could restrict its recovery.

Silver presents a somewhat different investment opportunity. Unlike gold, silver has a significant industrial demand component, particularly from solar energy, electric vehicles, electronics and other emerging technologies. This dual character gives silver considerable long-term potential. However, its relatively smaller market and higher industrial sensitivity also make it more volatile than gold.

Can gold and silver recover by Diwali 2027?

I remain constructive on the medium-term outlook for precious metals, although further volatility and intermittent corrections cannot be ruled out.

Gold could potentially move towards $4,750 per ounce by Diwali 2027, supported by resilient investment demand, central bank accumulation and more favourable monetary conditions.

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Silver, on the other hand, could witness a sharper recovery if industrial demand remains strong and investment interest returns. I see potential for silver to move towards $75 per ounce, translating to approximately Rs 2.5 lakh, from current levels of around $50 per ounce (approximately Rs 1.85 lakh).

These are medium-term possibilities rather than assured price targets, and the journey could remain volatile.

My view: Is this the right time to buy?

In my assessment, precious metals appear to have entered an oversold zone following the sharp correction. While it is difficult to identify the exact bottom, the underlying long-term fundamentals remain reasonably supportive.

For long-term investors, staggered accumulation at current levels could be a sensible strategy rather than waiting for a perfect entry point or committing the entire investment at once. Investors should also remain mindful of their risk appetite, investment horizon and the possibility of further downside.

This Diwali, the smarter approach may be disciplined accumulation rather than trying to catch the market bottom. Ultimately, the next leg of the precious metals rally will depend on global monetary policy, currency movements, geopolitical developments and the strength of underlying demand.

I believe the recent correction could be an opportunity for patient investors to position themselves ahead of the next potential precious metals cycle.

(Sunil Katke is a National Head of Commodity at Retail, Kotak Neo)