Gold and Precious Metals

Gold prices restrained by dollar strength, silver investment demand could rebound – Heraeus

(Kitco News) – Gold prices are being held back by the strong U.S. dollar, while weak physical demand for silver could be offset by the return of investment demand, according to the latest precious metals report from analysts at Heraeus.

The analysts pointed out that USD strength was the major factor in keeping precious metal prices down last week.

“Expectations of a cut to US interest rates in March have receded again after the Federal Reserve Board Governor, Christopher Waller, said last week that the central bank should not rush towards interest rate cuts until the bank is sure that lower inflation will remain,” they wrote. “The prospect of higher for yet-longer interest rates has boosted the dollar most since 2 January, and gold fell by more than 1% week-on-week as the negative correlation between the two assets asserted itself.”

Gold prices are near the middle of their daily range on Monday, with spot gold last trading at $2,022.46 at the time of writing, down 0.35% on the session.

They said that while many in the market still expect the first rate cut at the March 20 FOMC meeting, “the probability has fallen to 50% as of Friday, from 70% on 11 January. Rate cuts are likely sooner or later, at which point gold is expected to benefit.”

Turning to silver, Heraeus said that U.S. investment demand from the retail sector is proving resilient but remains below historical levels, while physical demand outside the U.S. is falling sharply.

“With year-end sales now available, data from the US Mint shows that cumulative silver coin sales reached 24.8 moz in 2023,” they said. “This represents a robust improvement year-on-year from 16 moz in 2022, though is still nearly 16% lower than the 10-year average.”

The relative resilience of the U.S. market stands in contrast with other key markets around the globe. “Worldwide, physical investment in silver is estimated to have fallen by 21% year-on-year in 2023 to 263 moz,” they said, quoting the latest Silver Institute data. “Sales of silver bullion from the Perth Mint, which has been popular with German retail investors, contracted by 36% year-on-year to 14.9 moz, likely impacted by the VAT hike on coins in Germany.”

The analysts also noted softening of the Indian market due to higher silver prices. “India’s silver imports were down 59% year-on-year, signalling that consumer demand is considerably lower in the higher-priced environment,” they said. “Inflationary pressure and central bank actions will influence physical retail demand in 2024, which, with ongoing geopolitical uncertainty, could see some safe-haven buying and a return to investment demand growth.”

Heraeus pointed out that silver set a new 2024 low last week, and broke below an ascending trend line, indicating that it could fall further. “Support could be found at $22.20/oz as the silver price has rarely traded below this level in the last nine months,” they said.

Silver prices were indeed sliding lower on Monday morning, with the spot price twice dipping below $22 in early trading. Spot silver is down over 2% at the time of writing, last trading at $22.164 per ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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