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(Kitco News) - The silver market continues to be sensitive to gold’s price action; however, the volatility in the marketplace shows what kind of potential the grey metal has when gold prices start to rally.
The gold market, as the contract rolls over to a new month, is seeing a new push back above $2,000 an ounce; however, silver is outperforming the precious metal as it makes a move back to $25 an ounce.
September silver last traded at $24.975 an ounce, up nearly 2% on the day. At the same time, December gold futures last traded at $2,009 an ounce, up 0.50% on the day.
According to some analysts, both gold and silver are benefitting from growing perceptions that the Federal Reserve has ended its tightening cycle. After raising interest rates by 25 basis points last week, Fed Chair Jerome Powell said that the central bank is keeping its options open and will be heavily data-dependent ahead of September’s decision.
Economists and analysts have said that weaker inflation data gives the Federal Reserve room to halt its tightening cycle. According to the CME FedWatch Tool, markets see a 79.5% chance that interest rates will remain unchanged in September.
“Market players are feeling validated in their belief that the Federal Reserve’s rates are either at or near their terminal point, especially with crucial U.S. inflation reports indicating a faster pace of disinflation,” said James Hyerczyk, technical analyst at ForexEmpire.com. “This positive sentiment has had a positive impact on silver, which found support around $22.66 to $22.81. It’s worth noting that the market tends to experience choppy price action and less stable returns during this period of the year.”
Hyerczyk noted that silver is on track for its best month since March.
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| Gold investors will be watching U.S. data like a hawk next week, anticipating a weakening trend |
Along with shifting U.S. monetary policy, analysts note that robust economic activity is also supporting silver prices. Silver’s industrial demand continues to be driven by the global green energy transition.
Precious metals analysts at Heraeus said that silver could see robust industrial demand as the U.S. Department of Energy looks to spend $45 million to develop domestic manufacturing with the solar power sector.
“The solar sector has been the fastest-growing silver demand sector (13% CAGR since 2014) and is forecast to reach a record 161 moz this year, equal to ~14% of total demand,” the analysts at Heraeus said in their latest research note. “Investment in non-Chinese photovoltaic manufacturing is likely to simply result in re-routing of silver demand from the East to the West, while expected growth in solar capacity installations in the EU and U.S. should lead to higher global net silver paste demand. Installed solar capacity grew by 18.5% and 19.8% in the U.S. and Europe, respectively, in 2022.”
Despite silver’s healthy start to the new trading week, Manish Jaradi, market strategist at DailyFX.com, said he would like to see a break above $26.15 to provide a clearer picture of the bullish trend.
He added that a drop below $22.10 would highlight a new bearish trend in the marketplace.
