(Kitco News) – Indian cuts to gold and silver tariffs and an uptick in Chinese physical demand will boost gold prices, while silver continues to struggle despite rising interest from ETFs, according to Rhona O'Connell, Head of Market Analysis at StoneX Bullion.
In a Monday blog post, O'Connell noted that gold prices saw a U.S. data-driven rollercoaster last week which left the yellow metal nearly unchanged but ultimately served to cement expectations for a September rate cut.
Meanwhile, a number of international developments may have slipped under the radar, but they could prove significant for precious metals investors.
“In gold’s physical markets there are clear signs of a revival in physical interest,” O'Connell wrote. “Firstly, the Indian Government reduced import tariffs on gold and silver from 15% to 6% in mid-week last week. Initially this saw some selling develop as holders adjusted to the new lower landed price (platinum and palladium tariffs were also reduced, from 15.5% to 6.4%). The selling did not last long, however, and after periods when domestic prices have been at a discount to international prices a premium was rapidly established.”
She also sees indications of renewed gold demand in China. “Shanghai is now back to a premium over loco London but the market has some way to go to reverse the heavy falls in jewellery sales in the first half of this year, which according to the China Gold Council were down by 524t overall,” O'Connell said. “Buying had been relatively strong in the first quarter, and this therefore implies an implosion in Q2. That said, sales of bars and coins are reportedly higher.”
Gold ETF flows have also remained positive, posting 16 tonnes of net inflows in only four days last week, “taking net creations in July to 47t, reducing the year-to-date losses to 76t for holdings of 3,150t,” she said. “Global mine production is ~3,750t.”
Silver, by contrast, is continuing to face difficult market conditions from the overflow of weakness in the base metals markets.
“Silver is failing to rally with gold and the constant talk of overcapacity in China’s solar market, which has added substantially to silver physical demand – estimates for 2023 show solar demand of 6,017t last year, 20% of global fabrication (excluding investment) demand, could well be an influence here,” O'Connell said. “Silver ETFs look to have found bargain hunting as last week saw four days of net creations, for a net gain of 684t over the week, of 702t for the month to date and a year-to-date gain of 393t. Global mine production is ~25,800tpa.”
“Technicals don’t look good either, with the moving averages in a negative formation and the MACD flashing negative since 18th July,” she added. “In addition, we mentioned in the past two weeks that the gold:silver ratio’s technical indicators were becoming bullish; the 10-day moving average has now moved even further above the 20-day, which may continue to bode ill for silver.”
Turning to futures markets, O'Connell noted that both gold and silver were under pressure during the week ending July 23, with the price of the gold contract falling 2.7% to $2,401 while silver futures dropped 7% to $29.10. “Gold outright longs dropped by 9% or 58t to 615t; outright shorts expanded by 9% to 109t,” she said. “Net long down from 574t to 507t.”
“Silver outright longs fell by 21% to 1,926t and shorts contracted marginally, by 3% or 103t to 2,881t,” O'Connell wrote. “Net long down 30% to 4,173t.”
