 | Get all the essential market news and expert opinions in one place with our daily newsletter. Receive a comprehensive recap of the day's top stories directly to your inbox. Sign up here! |
(Kitco News) -
A hawkish Federal Reserve could keep pressure on gold prices for longer, according to commodity analysts at Heraeus Precious Metals.
Monday’s latest report from the precious metals research firm said that Federal Reserve Chair Jerome Powell’s renewed hawkish outlook following the July meeting, combined with encouraging data for the US economy over the past month, has raised expectations for more interest rate hikes.
“Interest rate traders now see the first cut to interest rates coming in May 2024, with a peak in late 2023, which could be a headwind for gold over the next 10 months as the dollar is likely to remain strong, and attractiveness of non-yielding assets falls,” the analysts wrote. “The risk is, of course, that extra-tight monetary policy tips the US economy into a recession, an outcome pointed to by numerous leading indicators. The economic uncertainty that comes with a recession could provide a catalyst for gold if it does arrive.”
They note that the yellow metal has weakened as market uncertainty from the U.S. regional bank collapses in May has dissipated. “The gold price is down 7.8% from its peak during that time and closed last week’s trading at $1,919/oz after successfully defending $1,900/oz – a technical support level,” they wrote.
Gold prices hit new daily highs of $1,939.90 an ounce on Monday morning after the release of the Institute for Supply Management (ISM) manufacturing index for June, which came in at 46% against market expecatiions for a 47.2% reading. At the time of writing, spot gold is trading at $1929.26.
Turning to silver, the Heraeus analysts see strong demand from Europe driven by burgeoning investment in solar energy.
“European solar start-ups have raised $6 billion year-to-date, which is five-times the amount of funds raised by companies in the same period last year and is outperforming global company average financing totals,” they wrote. “European installed photovoltaic (PV) capacity grew by 20% last year to 237 GW. Although China accounts for ~80% of solar panel output, the EU is targeting domestic manufacturing of 30 GW by 2025. This would have made up ~75% of last year’s new installations.”
The analysts also expect European demand for silver paste to increase alongside regional production. “In 2022, global demand for silver paste in PV cells hit a record of 140 moz,” they wrote. “This is expected to increase again in 2023 as silver demand from rapid expansions in renewable power generation outpaces levels of thrifting.”
Silver also hit session highs following the June ISM report, rising from $22.778 just before the 8:30 am EDT release to bounce off resistance at $23 per ounce. Spot silver was last trading at $22.953 at the time of writing.
