(Kitco News) – While interest rate optimism has put the wind back in gold’s sails, U.S. dollar weakness and political risks could be the bigger drivers going forward, while silver may be losing its momentum in key areas despite the recent rally to $39 per ounce, according to precious metals analysts at Heraeus.
In their latest precious metals update, the analysts wrote that India’s gold imports rose to around 37.5 tonnes in July, nearly $4 billion in value. “Imports during the first half of the year were relatively subdued at 170 tonnes as the high gold price has crimped jewellery demand,” they said. “However, with the wedding season approaching it seems that jewellery fabricators have been stocking up.”
The analysts also noted that the minutes from the last Fed meeting show the majority of participants were more concerned with inflation than the jobs market, even though two dissenters voted to cut interest rates. “Given that inflation is still clearly above 2%, there might be a lower chance of a rate cut at the September meeting than the market is predicting,” they warned.
“Safe-haven demand is only one element of gold’s appeal and with the Fed under pressure from US government officials and President Trump to cut rates, interference with the central bank and the possibility of policy mistakes could be a larger concern, with implications for interest rates and the dollar (lower) and gold (higher),” they added.
Gold prices shot into the high $3,370s in the wake of Fed chair Powell’s remarks from Jackson Hole on Friday morning, and the yellow metal has maintained its higher range following the overall dovish comments.
Spot gold is continuing to bounce around within its new elevated range to start the week, last trading at $3,370.46 per ounce for a loss of 0.02% on the session.
Turning to silver, Heraeus said recent changes in Chinese government policy will likely depress silver demand from solar projects.
“China’s solar industry faces headwinds in the third quarter as developers curb projects while they await guidelines for forthcoming auctions,” they wrote. “The government has mandated that all solar projects must participate in the power market, ending the practice of selling electricity directly to the grids at local coal benchmark tariffs. Developers are likely to hold off on investment decisions until provinces within China can implement Contracts-for-Difference (CfDs) that will be sold in auctions. Consequently, a sharp slowdown in third-quarter solar capacity additions is expected, potentially falling to half the volume installed in the third quarter of 2024.”
And in the futures market, the analysts noted that speculative traders have begun dialing back their silver exposure, taking profits after the recent gains.
“Since the price peaked in July, speculative net long positions have declined by 16,352 contracts (27%), including 6,390 last week, bringing the total non-commercial net length to 44,268 contracts (221 moz) – a four-month low,” they said. “It is likely speculators were reassessing risk ahead of the upcoming Fed symposium and the September rate decision.”
The silver price also rallied in the wake of Powell’s speech, and the gray metal has already tested resistance at $39 per ounce on two occasions during Monday’s trading.
At the time of writing, spot silver last traded at $38.745 per ounce and is down 0.31% on the daily chart.
