(Kitco News) – Gold is set to benefit from several tailwinds in Q4, including this week’s expected Fed rate cut, continued central bank purchases, and a rebound in Chinese demand, while silver prices will gain on standout Indian demand and a weaker USD, according to precious metals analysts at Heraeus.
In their latest precious metals report, Heraeus noted that the kickoff of the Fed’s rate-cutting cycle on Wednesday should be good for gold, even if it’s only a 25 bps cut.
“The probability that the Fed will cut interest rates by 50bp this week, as assessed by the swaps market, fell to 13%; down from 40% last week, before seeing a resurgence in dovish bets on Friday which took the probability to 43%,” the analysts wrote. “This comes as the ECB cut by 25bp for a second time last Thursday adding to transatlantic interest rate differentials.”
“A 50bp cut to the federal funds rate would likely give gold a bigger boost, but either way, a lower interest rate environment tends to be positive for gold as the dollar is expected to weaken and the opportunity cost of holding gold as a non-yielding asset falls,” they added. “If the Fed ends up cutting more than expected at the next few meetings, the upside for the gold price could be magnified.”
Heraeus also believes the outcome of the upcoming U.S. presidential election will impact gold prices. “Both major parties appear hesitant to rein in government spending, with Republicans also considering raising trade tariffs – both of which are a risk factor for inflation and also a positive driver for the gold price,” they said.
Sovereign demand also looks to continue even amidst record-setting prices. “Central banks are remaining committed to gold purchases, with net additions to reserves rising to 37 tonnes globally in June (source: World Gold Council), despite the PBoC reporting zero purchases or sales for another month,” the analysts said, noting that central bank gold sales dropped to 4 tonnes in July while purchases rose to the highest level since February. “High gold prices are not typically a headwind for central banks, which tend to buy gold as part of asset diversification programmes and are therefore generally price-agnostic,” they pointed out.
Heraeus also expects Chinese gold demand to rebound in the fourth quarter as seasonal demand returns. “It was a quiet summer in terms of gold withdrawals from the Shanghai Gold Exchange and August saw the first net outflow in Chinese ETF holdings in nine months,” the analysts wrote. “However, wholesale demand as inferred by SGE withdrawals tends to be strong in September-October as jewellers stock up ahead of the national holiday in October. This is an auspicious time to buy gold and usually sees strong demand, though this year weak consumer sentiment is certainly a risk to the downside.”
Spot gold whipsawed in early trading on Monday, but the yellow metal is still holding above $2,575 per ounce after last week’s sharp rise. Spot gold last traded at $2,582.42 per ounce for a gain of 0.14% on the session.
Turning to silver, Heraeus wrote that the gray metal is getting a massive boost from Indian demand in 2024.
“Preliminary import data for July show that silver imports into India are up by 715% year-to-date versus 2023 and have reached 4,554 tonnes (146.4 moz) according to India’s Ministry of Commerce and Industry, equal to 17% of global primary supply predicted for this year,” the analysts said. “Last year, demand for silver imports was weak as the jewellery and silverware industries went through a period of destocking, with imports totalling only 3,625 tonnes. This year’s silver demand is almost entirely domestic, with exports having reached only 230 tonnes year-to-date.”
Imports of silver bars have risen from 399 tonnes in 2023 to 2,207 tonnes in H1 2024, “indicating that investment demand has been a key driver for the rise, alongside traditional demand streams of jewellery and silverware, for which India is the largest market,” they noted. “The cut to silver import duty from 15% to 6% in July may also have helped boost imports in the last two months, though the data is not yet available.”
“With the winter wedding season approaching, demand could receive a seasonal boost, particularly if the gold price outperforms silver in Q4 and pushes down the gold-silver ratio,” the analysts said. “Like the other precious metals, the silver price saw robust gains last week and managed to hold above $30/oz, closing trading on Friday nearly 10% higher on a weekly basis at $30.89. With gold and copper again moving higher, a yet weaker dollar could be what’s needed to provide the impetus to maintain its position in the 30s.”
Silver prices were also very volatile Monday morning, but they’ve converted prior resistance at $30 into support, with spot silver last trading at $30.821 per ounce for a gain of 0.33% on the daily chart.
