Gold is expected to see renewed demand from ETF investors once the rate cut cycle begins later this year. The interest rate cycle that started in 2022 led many investors to sell gold, but with the cost of holding non-interest-paying gold now relatively higher compared to US T-bills offering a 12-month return above 5 per cent, there is optimism for increased demand. While gold is trading near a one-month high, silver and platinum have seen significant increases in value, supported by surging industrial metals. The combination of sticky inflation and soft economic data is likely to continue supporting demand for precious metals.
Saxo Bank maintains a positive outlook for investment metals due to various factors, including geopolitical risks related to Russia/Ukraine and the Middle East, strong retail demand in China, continuing central bank demand, rising debt-to-GDP ratios among major economies, and a reaccelerating inflation outlook. Gold has held above technical levels and is currently holding an elevated speculative long position in the futures market. The buy-on-dip interest in the gold market remains strong, but the question of whether this momentum is sufficient to push prices to a new record remains.
While gold may require more time to adjust to current high price levels, silver is also experiencing a period of consolidation before potentially breaking through key resistance levels. A break above the $30 area for silver could lead to further momentum following funds, as the gold-silver ratio continues to trade below 81 ounces of silver to one ounce of gold. The ratio has been decreasing from a January peak above 92, suggesting a shift in relative strength between the two metals.
In conclusion, the outlook for gold and silver remains positive, with various factors supporting demand for precious metals. The ongoing geopolitical risks, strong retail demand, central bank interest, rising debt levels, and reaccelerating inflation all contribute to the favorable environment for investment metals. While gold may require patience to reach new record levels, silver’s potential breakout above key resistance levels could further boost momentum for both metals. Investors are advised to keep a close eye on market developments and adjust their strategies accordingly to capitalize on potential opportunities in the precious metals sector.
