Gold prices are encountering resistance due to elevated bond yields, while silver is anticipated to gain from the global rollout of 5G technology in the coming years, according to analysts at Heraeus.
In their recent report on precious metals, the analysts highlighted the Federal Reserve’s acknowledgment of the current economic conditions.
“Federal Reserve Chairman Jerome Powell dismissed the possibility of a rate hike in June during Wednesday’s FOMC meeting, emphasizing a commitment to managing inflation given the lack of progress toward the 2% target rate,” they stated. “Despite the prevailing strength of the dollar, we have witnessed a decline in the past two weeks. However, immediately following the meeting, the likelihood of an interest rate cut before year-end slightly increased.”
The analysts also underscored the unprecedented volume of gold purchases by central banks in the first quarter. “Global central banks accumulated 289.7 tonnes of gold in their reserves, setting a record high for the first quarter,” they noted. “However, Western ETF investors, particularly European funds, have notably reduced their gold holdings by approximately 30 tonnes in April.”
Regarding investor sentiment, the analysts observed that high-yielding bonds continue to be favored over gold. “Nevertheless, with increasing expectations of rate cuts by the ECB, this trend could potentially reverse.”
Examining recent price movements, Heraeus highlighted the consolidation of gold prices following a 20% increase over the past two months. “The non-commercial net long futures position reached approximately 20.3 million ounces in the week of April 23, resembling the highest levels observed during a period when gold was priced much lower in 2023,” they explained.
“While speculative positioning has risen alongside the price, it remains well below levels seen from 2020 to 2022, leaving room for further expansion of positions,” the analysts added. “The recent retreat in gold prices has alleviated overbought conditions. In the short term, price consolidation may continue, but the potential for higher prices remains in the long term.”
Spot gold initially rebounded from support at $2,310 per ounce during the early morning EDT, rising further at the US market opening. At the time of writing, it was trading at $2,320.17 per ounce, reflecting a modest 0.16% decline on the session.
Turning to silver, Heraeus anticipates sustained demand driven by the expanding 5G technology sector.
“Silver is essential in semiconductors, consumer electronics, automotive electronics, and infrastructure hardware, all of which benefit from the adoption of a 5G ecosystem requiring higher-density infrastructure for optimal signal coverage,” they elaborated. “In 2022, sales of 5G mobile devices surpassed those of 4G devices for the first time, capturing 53% of the market share versus 4G’s 45%. By 2023, this gap widened further, with 5G device sales reaching 60% while 4G sales declined to 40%.”
The rollout of 5G infrastructure in emerging markets, such as India, is expected to further boost silver demand. “Key Indian telecom operators like Reliance Jio and Bharti Airtel aim for nationwide 5G coverage by 2024, which could significantly enhance applications in the world’s second-largest population.”
Heraeus highlighted that silver prices have closely mirrored the declines seen in gold and have surpassed the yellow metal in terms of percentage decline. “Silver prices dropped below the $27 per ounce mark this week, experiencing an even sharper pullback compared to gold.”
Spot silver continued to track gold’s performance on Tuesday with a notable rise into positive territory at the market open, reaching $27.411 per ounce at the time of writing.
