Gold and Silver Prices Gain Ground on Monday
Gold prices rose on Monday amid thin trading conditions due to public holidays in the UK and the US. The precious metal, trading in the $2,340 range, made a modest recovery from oversold levels. The market is largely subdued ahead of key US inflation data expected later in the week.
The yellow metal bounced back from two-week lows of $2,325, supported by a decline in US Treasury yields and a weaker US Dollar. At the time of writing, gold (XAU/USD) is trading at $2,354, up nearly 1% for the day.
Market Dynamics Affecting Gold
Last week, gold prices fell sharply from a peak of $2,450 to $2,325 due to shifting expectations regarding the US Federal Reserve’s future interest rate policies. Strong US economic data prompted a reevaluation of when the Fed might start cutting interest rates. According to the CME FedWatch Tool, the probability of a 0.25% rate cut in September has dropped from 65% to 49%.
High interest rates generally weigh on non-yielding assets like gold, as they increase the opportunity cost of holding such investments. Fedspeak last week indicated that curbing inflation to the Fed’s 2% core target will take longer than previously anticipated, further pressuring gold prices.
Despite this, analysts from UBS suggest that gold prices are likely to remain volatile but anticipate shallow setbacks, forecasting potential new record highs later this year.
Silver Rises Amid Geopolitical Tensions
Silver prices also saw an uptick, trading at $30.80 per troy ounce during the European session on Monday. The grey metal benefited from increased demand for safe-haven assets amid heightened geopolitical tensions in the Middle East. According to CNN, Israeli strikes killed at least 35 people in Rafah on Sunday, intensifying the conflict in Gaza.
While ceasefire and hostage negotiations between Israel and Hamas are set to continue next week, the talks have hit a stalemate due to significant disagreements on key conditions.
Economic Factors Supporting Silver
Silver’s rise is further supported by a subdued US Dollar, following positive market sentiment after the release of the University of Michigan’s 5-year Consumer Inflation Expectations for May, which came in slightly lower than expected at 3.0%. Although the Consumer Sentiment Index was revised upward to 69.1 from an initial 67.4, it still marked a six-month low. These figures likely bolstered investor sentiment regarding potential future rate cuts by the Federal Reserve.
However, recent hawkish comments from Fed officials suggest a continuation of higher interest rates for a prolonged period. Fed Vice Chair Michael Barr highlighted the need for more time to assess the impact of restrictive policies, and Atlanta Fed President Raphael Bostic indicated only one rate cut this year. High interest rates generally reduce the appeal of non-yielding assets like silver.
In summary, gold and silver prices rose on Monday amid thin trading and geopolitical tensions. While economic indicators and market sentiment suggest potential for future gains, hawkish Fed comments and high interest rates may continue to pose challenges for these non-yielding assets.
