(Kitco News) - The Fed’s rate hold was bearish for gold, but central bank interest will continue to support prices in 2024, while silver demand from solar is likely to exceed forecasts once again, according to precious metals analysts at Heraeus.
“Net demand from central banking institutions was just 4% lower last year than the record set in 2022,” the analysts noted in their latest report, pointing out that 225 tonnes of the 1,037 total added to national reserves last year went to China. “The second-largest contributor was Poland, which added 130 tonnes in the last year,” they said. “It is likely that Poland will continue to add to its gold reserves as it aims to have 20% of its international reserves as gold. By the end of the year, gold made up 12%.”
While they expect central bank gold purchases to remain above the long-term averages in 2024, they see it coming in slightly lower than last year and also below the record-setting pace of 2022. “Elevated geopolitical risks and de-dollarisation schemes should help to maintain momentum among emerging market banks and the People’s Bank of China,” they said.
Heraeus sees the Fed’s rate hold last week as “an apparently bearish one for gold” due largely to FOMC Chair Powell’s remarks that a cut in March was extremely unlikely. “The official statement said it would not be appropriate to cut rates until the committee had ‘gained greater confidence that inflation is moving sustainably towards 2%,’” they said.
The analysts added that the Fed’s position is unlikely to change, barring a significant deterioration in economic data between now and the March meeting. “If CPI readings do come in cooler in the next two months, gold could begin to trend higher before a larger move in the event of a cut, as it would weaken the US dollar,” they said.
Spot gold hit a weekly low of $2,016 early Monday morning, but the precious metal is seeing renewed buying on Tuesday, last trading at $2,036.18, just off session highs at the time of writing.
Turning to silver, Heraeus analysts expect another year of record solar silver demand in 2024, as they see solar production continuing to overshoot industry estimates.
“Installations of solar panels exceeded expectations in 2023,” they wrote. “Initial estimates of 413 GW for global photovoltaic additions have been revised higher to about 443 GW (source: BNEF). China led the way, contributing about half of the total, while installations in the US also had a record year as equipment prices fell and the IRA added new subsidies.”
“The huge rollout of new installations propelled solar silver demand to 190 moz last year,” they said. “This year, growth should largely continue, possibly taking solar demand over 200 moz. One risk to growth could be the reinstatement of anti-dumping tariffs for certain Asian solar equipment in the U.S. from April. However, compared with China, fluctuations in demand in other markets may be just a drop in the ocean of solar silver demand.”
The analysts cite the latest forecast from The Silver Institute, projecting total industrial demand to reach a record of 690 million ounces in 2024, which would represent an annual increase of 4%.
Spot silver failed to hold support above $23 per ounce on Friday amid the renewed strength of the U.S. dollar, but the gray metal is also seeing a bit of a rally on Tuesday, last trading up 0.46% on the session at $22.453 at the time of writing.
