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Indian demand supports gold prices, while industrial demand supports silver - Heraeus

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(Kitco News) - Strong festival demand for gold in India and record-setting industrial demand for silver across the globe are supporting this year’s price outlook for both precious metals, according to analysts at Heraeus.

The analysts noted that Indian gold demand during the festival period appeared to have been strong. “Preliminary import data show that gold imports in October may have risen by ~50% year-on-year during the month to ~115 tonnes, suggesting that festive demand for gold was stronger this year than in 2022,” they wrote. “The Hindu festivals of Dhanteras and Diwali, held earlier this month, tend to be drivers for gold purchases so dealers stocked up in October.”

During the first three quarters of 2023, Indian gold demand was 3% lower year-on-year at 481 tonnes, according to the World Gold Council. “To match last year’s level of gold consumption, Q4’23 will have to be the strongest quarter for demand in two years,” they wrote. “When adding October’s imports to year-to-date demand this looks possible, though not probable, as without the demand catalysts of the November festivals, the persistently high gold prices in India may crimp demand to the end of the year.”

After hitting its weekly high around $1,993 per ounce late Friday afternoon, spot gold once again failed to breach the $2,000 level, and has since pulled back, last trading at $1,977.53 at the time of writing, down 0.16% on Monday.

The analysts also noted the latest figures from The Silver Institute which are projecting record industrial silver demand this year. “The industry body’s industrial demand forecast for 2023 has been revised 10% higher to 632 moz, primarily as a result of the faster than expected deployment of solar photovoltaics this year,” they said. “China has added 129 GW of solar capacity this year (source: China National Energy Agency), more than any other year.”

This sky-high demand for the precious metal is confronting dwindling supply from the mining sector. “Silver mine supply is now expected to fall 2% year-on-year, having initially been forecast to rise 2%,” they wrote, attributing most of the reduction to the temporary closure of Newmont’s Peñasquito mine earlier in 2023. “This closure is estimated to have erased 16 moz from forecast silver production in 2023. In addition, based on production guidance, silver output from KGHM (the world’s second largest silver miner) is predicted to fall by 2% year-on-year to 41.8 moz, though there is a chance that the company will beat this target by the end of 2023.”

Heraeus wrote that surprisingly strong smartphone sales are also helping to boost silver demand. “Worldwide smartphone shipments fell just 0.1% year-on-year in Q3’23 to 303 million units,” they said. “Consumer electronics sales have been relatively weak this year which has not helped silver demand for electronic components (~40% of total industrial demand). However, the higher smartphone sales are a sign that a recovery may be underway following a period of destocking by retailers in H1 ’23.”

They also noted that 5G phones, which contain more silver than 4G handsets, reached 60% market share. “The fourth quarter is typically the strongest for smartphone sales, and shipments are expected to rise year-on-year,” they said. “The risk is that next year economic weakness will impact consumer spending and sales will dip, and if not offset by a rising 5G market share, associated silver demand could also slip.”

Silver outperformed gold last week, with spot silver trading above $24 late Friday evening. “Friday’s close was the highest weekly close since the end of August, and the gold:silver ratio fell to 83.4,” they said.

After hitting a session low of $23.246 shortly after 8:30 am EST on Monday, spot silver has recovered somewhat, and last traded at $23.488, but it’s still down 0.99% on the session.

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