(Kitco News) – Gold’s new record highs post-FOMC could mean better price performance to come against the euro, while silver ETF holdings are holding up even better than gold, according to precious metals strategists at Heraeus.
“The market-assessed probability of the Fed cutting rates at last week’s meeting peaked at 76.9% in January,” they noted in the latest precious metals report. “Since then, hotter than expected inflation readings and stronger than anticipated sectoral growth in the US eliminated the chance of a cut. Last Wednesday, the Fed opted to keep rates where they were but maintained the outlook for 75 bp of interest rate cuts this year, suggesting the central bank is not concerned the US economy is running too hot.”
The analysts wrote that this “cautious, yet still dovish, tone and forecast for cuts” contributed to a weaker U.S. dollar following last week’s FOMC and pushed gold prices above $2,200 per ounce for the first time.
On the European front, they noted that Thursday’s disappointing French Purchasing Managers’ Index (PMI) manufacturing data weakened the EUR/USD cross after the previous day’s strength, which sent the euro gold price to a new all-time high as well. “The French manufacturing PMI has now contracted for 13 months in a row,” they said. “Weakness in the major European economies increases the likelihood that the ECB will begin to reduce benchmark interest rates at the decision meeting in June. If the ECB cuts rates before the Fed, this could benefit the euro gold price if the euro weakens relative to the US dollar.”
Spot gold has had a rollercoaster start to the last week in March and Q1, with strong gains early in the Asian session and again at the North American open sending prices as high as $2,181 per ounce. It has since pulled back somewhat, last trading at $2,175.75, up 0.46% on the day.
Turning to silver, Heraeus said flows data showed that silver ETF holdings have performed better than gold.
“Despite the price performing comparatively worse than gold year-to-date, silver ETF holdings in global funds have increased by 2% since the beginning of January, against a reduction of 4% for holdings in gold funds (including gold inflows creeping in last week),” they wrote. “Holdings in silver funds have increased to 716.5 moz from 699.9 moz at the end of 2023, while investors have sold 3.1 moz from gold funds. Silver ETF buying momentum swung more positive in the last week, following the price higher. However, holdings are still a long way off the peak of 1,021 moz in February 2021.”
They noted that silver coin sales have also been stronger than their gold counterparts in 2024. “First-quarter Silver Eagle sales from the US Mint are on track to outpace Q1’23 by nearly 40%, while the gold equivalent is likely to be at least 50% lower year-on-year,” the analysts said. “The silver price has regained some ground relative to gold in the last few weeks and could outperform gold in the near term if the current rally is sustained following last week’s pullback.”
Spot silver prices have more or less mirrored those of gold, with peaks early in overnight and American trading followed by a moderate pullback, though the gray metal failed to breach the $25 per ounce level, topping out at $24.876 shortly before 10 pm EST. It last traded at $24.787 for a gain of 0.22% on the day.
