(Kitco News) –Gold prices may be peaking before they enter a prolonged period of decline, while silver mining production is growing even as coin demand shrinks, according to precious metals analysts at Heraeus.
In their latest precious metals update, the analysts warned that while gold’s performance over the last 18 months has been remarkable, prices may be reaching a top. “As the price nears $3,000/oz, signs of excess frothiness are becoming clearer, despite what appear to be firm fundamental drivers,” they wrote.
On the one hand, strong buying from central banks and investors is continuing to support the gold price. “Central banks look set to continue to accumulate gold this year, though perhaps at a slower pace than last year,” they said. “The PBOC added another 5 tonnes to its reserves in January. Investor ETF inflows have been robust since the start of the year, netting 34.5 tonnes of inflows year-to-date, versus 6.8 tonnes of net outflows in 2024.”
But, the analysts noted that not all the fundamental drivers are positive for the yellow metal. “A high gold price has eroded jewellery demand in many countries, most significantly in China, the largest market, where demand fell by 24% last year while recycling increased,” they said. “A ceasefire in the Middle East and tentative steps to a ceasefire in Ukraine may ease safe-haven flows, although uncertainty around US tariffs could shift the focus. The flows of metal to the US ahead of potential tariffs have been notable, but it is unclear how much is new demand and how much is just a reorganisation of the location of storage for the bars.”
Heraeus also sees some concerning technical indicators that suggest that gold may be due for a correction. “With an eighth consecutive weekly price gain following on from a 29% gain (in US$) in 2024, gold’s weekly price momentum has exceeded the levels seen in October 2024 and August 2020 ahead of 9% and 19% declines, respectively,” they noted. “At the same time, divergences have emerged between the relative strength index and the gold price on both a daily and a weekly price range.”
And the gold price is also trading well above its long-term moving average. “Looking back as far as the 1970s, the spread between the gold price and its 200-day moving average has rarely been as large as it is currently, in nominal dollar terms,” the analysts said. “Each time it occurred – in 1980, 2011 and 2020 – the large spread was the result of an explosive rally, and preceded a multiyear bear market for gold.”
Heraeus believes that the price rally will continue as long as investor and safe-haven buying does, but they see a correction as increasingly likely. “In the short term, the $2,800/oz level could offer support, and on a deeper pull-back the price could reach the $2,450-$2,550/oz range,” they said.
The analysts also warned of the downside risk to gold as speculators unwind their long positions. “The gold price could see its eighth consecutive week of gains, which is the longest streak since August 2020 when gold also had an eight-week rally,” they said. “However, in recent weeks the speculative net long futures position has fallen to under 31 moz, compared to nearly 33 moz at the start of February, as speculators take profits despite the price of gold continuing to rally. This suggests that at least some market participants think the rally could be nearly done.”
The potential end of hostilities in Ukraine could also impact gold’s safe-haven demand. “Gold safe-haven demand has been underpinned by escalating global trade tensions and the wars in Gaza and Ukraine,” the analysts said, but added that “Even if peace were achieved in Ukraine and the cease-fire in Gaza upheld, President Trump’s campaign of tariffs still persists as a risk that would fuel safe-haven demand.”
Spot gold reached another all-time high of $2,955 on Thursday, and on Monday morning, it surpassed that level, hitting 2,956.31 per ounce shortly after 9 am EST. Spot gold last traded at $2,940.74 per ounce for a gain of 0.15% on the session.
Turning to silver, Heraeus noted that mined silver supply growth for the leading U.S. producer appears to be robust.
“Hecla Mining Company, the largest US silver producer, mined 16.2 moz of silver in 2024 – a 13% year-on-year increase and the second-highest output in its 134-year history,” they said. “With 2025 production guidance of 15.5 moz -17.0 moz and strong reserves, Hecla is positioned to sustain output in the coming years. In 2023, Hecla accounted for ~45% of total US silver production, which stood at 32 moz (4% of global mine supply).”
Conversely, demand for U.S. silver coins has declined of late. “January is usually a strong month for silver coin sales for the US Mint, but last month American Silver Eagle coin sales fell 27% year-on-year to a little over 3.5 moz,” the analysts wrote. “This is the lowest level of January demand from the US Mint since 2018, and more than 1 moz below the 10-year average of 4.6 moz.”
“Any investor who purchased silver from the US Mint in 2020 to early-2024 is likely to be in profit at current prices, and therefore buying momentum could be slowing if investors are selling coins back to lock in profits,” they suggested. “Similarly, sales of silver investment products from the Perth Mint saw a decline of 46% year-on-year in January to 415 koz – the lowest since April 2017. Sales from the Perth Mint show less seasonal variation and therefore may not be an indicator of annual investment demand in 2025 but, as with the US Mint, sales are continuing to trend lower.”
After rising to a session high of $32.762 per ounce alongside gold on Monday morning, silver has since seen a sharp selloff. At the time of writing, spot silver last traded at $32.288 per ounce and is down 0.54% on the daily chart.
