Precious metals analysts at Heraeus have outlined a robust case for gold as it heads into 2025, bolstered by several key factors despite recent gains. They also highlight renewed interest in silver ETFs, even as Indian demand shows signs of weakening.
1. Political Uncertainty with a Potential Trump Victory:
Analysts at Heraeus view a potential second term for former President Donald Trump as a bullish signal for gold. Increased political uncertainty under a Trump administration could enhance gold’s appeal as a hedge against geopolitical risks. Trump’s policies, including a weaker dollar and increased tariffs, are anticipated to support gold prices.
2. Impact of US Dollar Policies:
The analysts anticipate that Trump’s proposed policies could lead to a weaker US dollar. “A weaker dollar is expected under a Republican administration,” they noted. Trump’s focus on reflationary policies and tariffs is projected to support gold prices, which have shown a poor correlation with the dollar so far this year but are fundamentally supported.
3. Room for Increased Speculative Positions:
Despite a bullish sentiment, speculative positions in gold are still below peak levels. Heraeus reported that net long positions grew to 25.8 million ounces in July but remain short of the 35.4 million ounces recorded during the Covid pandemic. This suggests further potential for long positions, although the risk of a price reversal rises with increased positioning.
4. Undersaturation of Gold Investment:
Heraeus highlights that global gold ETF holdings remain significantly lower than their 2020 peak. With current volumes about 30 million ounces below the 2020 high, the prospect of US interest rate cuts in September is expected to drive inflows. A shift in investment momentum from East to West could further support gold prices in the latter half of 2024.
Chinese Demand Decline:
In contrast, Chinese demand for gold has weakened. Elevated gold prices in yuan, low consumer confidence, and economic uncertainty have reduced gold jewelry demand in China. The growth in retail sales of gold and silver jewelry fell to just 0.2% year-on-year in June, the lowest since December 2022. Additionally, weak withdrawal data from the Shanghai Gold Exchange suggests a decline in gold jewelry demand for Q2 2024.
Silver Market Dynamics:
Silver has also attracted interest from ETF investors due to recent price movements. Despite Indian silver demand facing potential decline due to high prices, ETF investors have increased their holdings. After a drop below $29 per ounce, ETF purchases surged, pushing silver ETF holdings to a three-month high of 714.8 million ounces as of July 25.
Short-Term Silver Pressure:
Silver prices experienced heavy selling last week, with the spot price falling below $28 per ounce for the first time since May. The drop in US stocks and base metals, coupled with the EU economic sentiment survey’s first decline in a year, has exerted additional pressure on silver.
Currently, silver is seeing continued downward pressure, trading at $27.548 per ounce, down 1.37% on the daily chart.
In summary, Heraeus’ analysis points to a bullish outlook for gold driven by political uncertainty, potential dollar weakness, and speculative positioning, while acknowledging challenges in the silver market, particularly with Indian demand and current price pressures.
