- Rising real interest rates don't favor metals in the short term
- But silver has had a strong start to the week
- Meanwhile, gold has climbed back above $1900
Over the past month, gold and silver prices have been declining, mainly due to a stronger US dollar and the possibility of continued interest rate hikes by the Fed.
Gold becomes less appealing when interest rates are higher, especially in the long run. The beginning of this week indicates an upward trend, particularly evident in silver, which has experienced a more than 7% increase since Monday.
The pivotal event shaping price trends in the upcoming days will be the central bankers' meeting in Jackson Hole.
Markets are eagerly anticipating remarks from Jerome Powell, the Chair of the Federal Reserve, regarding the ongoing monetary policy.
If his statements lean towards a more accommodative approach, metals will probably experience a spike in demand. Conversely, if a less favorable tone is struck, a more significant market correction might take place.
A strong US dollar and high bond yields often correlate with high interest rates, which weaken gold as an asset since it doesn't generate passive income.
The alternatives, especially inflation-protected Treasury bonds, and traditional bank deposits, are gaining attention due to their increasingly higher returns.
If the Fed decides to continue raising interest rates, gold and silver will remain under selling pressure.
However, it's worth noting that despite the unfavorable macroeconomic backdrop, the valuation of these metals remains relatively high.
Therefore, in the long term, perhaps in the second half of 2024, when the Fed pivots, a bullish period similar to the years 2015-2020 might be in the cards.
Silver Breaks Out Amid Rising Demand
Long-term forecasts for silver haven't changed much recently. The demand is expected to steadily increase due to the renewable energy boom, especially in solar panels, which should put pressure on the demand side given the limited supply.
By 2025, just over 50% of the global demand for silver is projected to come from this industry. According to estimates from the Silver Institute, global demand has risen to 1.242 billion ounces against a supply of 1.004 billion ounces, creating the second-largest deficit in the last 20 years by the end of the year.
Currently, silver is moving with a strong upward momentum, aiming for highs around $25.50 per ounce.
Breaking out of the indicated range, the white metal will target the highs established in early 2021.
Gold: Technical View
The yellow metal has formed a narrow channel amid an ongoing correction. After testing the area around the lows of June and July, it broke out from the upper end of the channel.
This is a bullish signal, with the closest target located around $1980 per ounce.
If a breakout occurs above this range, it could pave the way for the bulls to push beyond $2,000 per ounce and challenge the supply zone that emerged in late July.
However, achieving this target might prove to be quite challenging within a relatively short timeframe, especially without the support of dovish statements from Fed Chairman Jerome Powell following the Jackson Hole symposium.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.