(Kitco News) – European and Chinese market dynamics will support further demand for gold, while silver’s long-awaited breakout is now underway, according to precious metals analysts at Heraeus.
In their latest precious metals update, the analysts said global gold demand will rise even higher as the Chinese market enters peak buying season.
“Gold withdrawals from the Shanghai Gold Exchange (SGE) rose by 12.8% month-on-month in September, following the seasonal trend as wholesalers stocked up for the Golden Week holiday in early October,” they wrote. “Withdrawals from the exchange represent gold demand from wholesalers and banks within China. As we move deeper into Q4, consumer gold demand is expected to stick to its seasonal pattern and pick up. The saving rate of the Chinese population is near record highs, while consumer confidence is near record lows, implying there is cash to be spent but not the willingness to spend it. If government stimulus raises consumer sentiment, consumer spending could rise – a portion of which is likely to be directed at jewellery and luxury goods.”
Heraeus said that with sky-high gold prices impacting overall demand on the mainland, the trend remains intact. “While withdrawals from the SGE are improving, they are doing so at a lower level compared to 2023 and the 5-year average,” they wrote. “Given that SGE withdrawals were down 31% year-on-year in Q3’24 at 305 tonnes, annual gold demand could contract in China this year – even with withdrawals on the rise. Q4 consumption would have to outperform 2023, which looks unlikely even with stimulus efforts.”
The analysts noted that gold’s latest all-time highs are coming despite continued strength from the U.S. dollar, and European monetary policy will continue to support the yellow metal’s gains.
“The ECB cut interest rates for a third time last Thursday as the emphasis for the central bank shifts from inflation-focused to growth-focused,” they said. “Continuing monetary easing in Europe should weaken the euro relative to other major currencies and support the euro gold price, which also reached another all-time high last week. The gold price has risen by almost a third this year, so far just beating out its 2007 full-year performance of 30.9%. 2024 is certainly an historic year for gold, and is shaping up to be the best year in terms of price performance in 45 years.”
Gold prices have started the week right where they left off, with a steady climb through new record highs. Spot gold last traded at $2,738.06 per ounce for a gain of 0.59% on the session.
Turning to silver, Heraeus said that while silver ETF holdings have been expanding recently, they still have further room to grow.
“Despite silver prices hanging on to a level just below a 10-year high, silver ETF holdings remain similar to 2023 levels,” they noted. “This is despite net inflows of 30 moz so far this year, and an upswing from cumulative net sales of 19 moz as recently as June. Total holdings currently sit at 730 moz. On balance, this seems to be a relatively muted response to the silver price reaching a decade-high this month. At their peak, silver ETF holdings reached more than 1 billion ounces, while the silver price was 15% lower than today.”
Heraeus believes silver is benefiting from significant tailwinds which could help to sustain the current breakout above $33 per ounce. “Lower real interest rates support capital allocation into bullion, and China’s efforts to stimulate economic growth also lend support to silver from the industrial sector,” they wrote. “Based on historical levels, investors have the capacity to increase holdings from the current base, but it will likely take a clear breakout to new highs to prompt this.”
The analysts pointed out that silver reached another cycle high last week. “By Friday, after four days of incremental gains, the silver price closed 2.55% higher at $32.48/oz,” they wrote. “Once silver does close above resistance at $32.94/oz, a further rapid movement higher may be possible.”
Silver managed to break definitively above $33 per ounce on Friday afternoon, and the gray metal has since breached the $34 level on Monday morning. At the time of writing, spot silver last traded at $34.073 per ounce and is up 1.07% on the daily chart.
