(Kitco News) – The expected ECB-Fed divergence will complicate things for gold investors, while solar demand is driving silver premiums in China to record highs, according to precious metals strategists at Heraeus.
In their latest precious metals report, the analysts noted that despite a down week, gold prices have still managed to stay above $2,300 per ounce. “Friday’s US Personal Consumption Expenditures (PCE) price index of 2.7% reinforced the message that the Fed’s first rate cut may arrive later than other major economies, most notably in the EU,” they said.
Heraeus sees the ECB cutting rates ahead of the Fed as a potential positive for European bullion investors. “The Eurozone maintained relatively cool inflation of 2.4% in April, an environment possibly enabling monetary easing for the ECB sooner rather than later,” they wrote. “The market has already started to price in an ECB rate cut at its meeting on 6 June. If effected, the increasing differential between the US and EU’s interest rates could weaken the euro, especially if the Fed delays a rate cut on its side.”
The analysts see both good and bad outcomes for gold prices as a result of the central banks’ divergence. “A stronger dollar diminishes foreign investors’ purchasing power, but a lower-rate environment could strengthen gold’s appeal to those buying gold in euros as a non-yielding asset, as an inflation and currency devaluation hedge,” they said. “Meanwhile, a weaker euro could spell greater relative upside for gold in euro terms versus the benchmark dollar price.”
Gold is seeing a strong start to the week, with spot gold last trading at $2,339.11 per ounce, up 0.51% on the session at the time of writing.
Turning to silver, the analysts said that retail investor sentiment towards the gray metal has been mixed so far this year, and they pointed out another divergence, this one in the coin market.
“A stark difference has emerged between sales of silver coins from the US Mint and bullion products from the Perth Mint in Australia,” they wrote. “Year-to-date, sales from the US have totalled 10.8 moz (up 4.15 moz year-on-year). Meanwhile, Perth Mint sales have fallen by 49% year-on-year to 3.21 moz in the first four months of 2024. Perth Mint coins have historically been popular in the German market, and it is possible that the changes to German VAT laws in 2023 continue to crimp demand for foreign bullion coins.”
“If sales from the US Mint continue at the same pace as at the start of the year, sales could exceed 32 moz this year which would be the highest since 2016,” they said.
Silver prices also maintained their recent high range above $30 per ounce despite last week’s losses, and regional price disparities have also widened. “Demand from robust solar PV production – now on course to exceed last year’s record – is set to maintain high silver import demand into China,” Heraeus said. “The trend is reflected by the high premium in China’s silver market. In April, the monthly spread between Shanghai and London’s silver spot price reached a highest-ever $3.69/oz. The increasing arbitrage could also encourage more metal flows into China and further tighten supply elsewhere.”
Silver is seeing a weaker start to the week, with spot silver last trading at $30.325 at the time of writing for a loss of 0.18% on the daily chart.
