(Kitco News) – Gold is getting a boost from expected Fed rate cuts, U.S. dollar weakness, and falling Treasury yields, while silver prices will likely catch up once the cutting cycle begins, according to precious metals analysts at Heraeus.
In their latest precious metals report, Heraeus noted that gold prices are rising along with rate cut expectations.
“Last week, gold managed to hold on to a position above $2,500/oz and made another new all-time high of $2,531/oz mid-week, building on the gains from the previous week’s trading,” they noted. “Investor sentiment and the interest rate speculation seem to be key drivers for gold at present. Managed money investors have accumulated one of the largest net long positions since the Covid rally four years ago at 22 moz (as of 16 August).”
The analysts said that U.S. dollar weakness and a drop in Treasury yields have also helped boost the yellow metal.
“Two-year yields are currently sitting just below 4% versus the Federal Funds Rate of 5.5%, suggesting that the next few interest rate cuts by the Fed are now priced into money markets, and with the recent rise of gold, perhaps the precious metals markets too,” they noted. “The huge downward revision to US employment figures last week bolsters the hypothesis that the Fed will begin cutting interest rates at the September meeting of the FOMC, as the US economy now looks weaker than the data had suggested over the last 12 months.”
“Despite a breakout in dollar terms, gold is yet to move out of the summer holding pattern in most other major currencies, including the Chinese yuan and the euro,” Heraeus said. “Greater breadth in the breakout may be required for a move substantially above the $2,500/oz mark. Given this, and the stretched futures positioning, the gold price may see some retracement before the next US interest rate decision.”
Spot gold is holding comfortably above the $2,500 per ounce level in Monday trading, though it has failed half a dozen attempts to break above $2,527. Spot gold last traded at $2,517.77 and is up 0.22% on the daily chart.
Turning to silver, the analysts pointed out that demand for bullion coins and bars remains strong despite silver prices continuing to lag gold.
“Silver bullion sales at the Perth Mint rebounded in July but demand is still down year-on-year,” they noted. “Sales of silver bars and coins improved by 91% month-on-month in July to 939,473 oz and made July the first month this year with growth in demand year-on-year. Despite this, on a year-to-date basis, sales of silver bullion are down 47% versus last year, at 5.55 moz. In contrast, sales of silver coins from the US Mint have been relatively robust year-to-date and are on track to match last year’s level of demand (~25 moz). Sales from the Perth Mint have been trending lower since the end of 2022.”
Silver prices have not risen to the same degree as those of gold over the last two weeks, Heraeus said, but this may change as interest rates begin to fall.
“Sluggishness in global industrial production has capped upside for silver, while it has not benefited from the geopolitical risk premium aiding gold,” they noted. “However, with interest rate cuts now firmly on the horizon, silver could begin to rise with gold. Additionally, industrial demand for silver looks relatively strong going into 2025, particularly as demand from solar photovoltaics looks to retain a good pace of growth.”
Spot silver topped out just a few pennies short of the $30 per ounce level last Tuesday, and despite a pullback, it still managed to finish in positive territory on the weekly chart.
Silver prices are seeing renewed strength to start the week, with spot silver breaking above the $30 level shortly before 3 am EDT Monday morning and reaching a high of $30.192 per ounce three hours later. Spot silver last traded at $29.848 per ounce for a slight gain of 0.06% on the session.
