Gold and silver have had a choppy month with the price of the precious metals currently highly correlated with one another as they continue to be affected by the same macroeconomic factors, and specifically the outlook on US Federal Reserve monetary policy.
Central bank decisions have prevented gold (GC=F) from breaking out of its tight range in either direction, trapped largely between $1,940 (£1517.89) and $1,980 (£1549.19). Silver (SI=F), meanwhile, has been trading around the $24 mark.
“Things can obviously change at any point and there's plenty of Fed speak this week as well as central bank interest rate decisions. But we've just heard the latest thoughts and projections from the Fed so I'm not sure what we'll learn of particular value. It's all about the data at this stage,” Craig Erlam, senior market analyst, UK & EMEA at OANDA, said.
Better to buy silver or gold?
Yahoo Finance spoke to Vincent Boy, a financial market analyst at IG, for his thoughts on whether silver is a better buy than gold at the moment.
He said he was of the view that silver currently presents a better opportunity compared to gold but noted it also has bigger risks with higher exposure to volatility and a more concentrated market, with few major players.
“With that said, gold and silver usually follow the same big trends, and if one is up, most of the time, the other is up too. Silver is a better choice for investors who are willing to take more risks and expect bigger returns
“Beside this comparison, both seem to present a nice opportunity to buy and hold for the long run, but, in the short term, the risk of a correction increases,” he said.
Interest rate impact
On 14 June, the US Federal Reserve decided to leave interest rates unchanged but forecast in its projections that it will raise interest rates as high as 5.6% before 2023 is over.
Vincent Boy noted that even if the Federal Reserve is near the end of its restrictive monetary policy, leading to a weaker dollar in the next quarters, the risk of a crisis, and a recession, increases.
“In 2008, gold and silver came down hard, when investors realised that the banking crisis would be painful for the economy, then they became massive buyers of US dollar, negatively impacting gold and silver.
“Then after, investors came back to risky assets and the US dollar fell, allowing the price of gold and silver to rise sharply the next years,” he added.
Boy also highlighted that beyond speculation, silver is one of the most conductive metals, and noted the high utilisation of it in industry, especially for the energy transition, which is expected to accelerate strongly during the next decades.
Silver price to reach $26?
An ANZ research note to clients pointed out how weakening economic growth in China is dimming prospects of industrial demand, which it said is reflected in an easing in the Shanghai spot premium, which has been falling since April with retreating silver imports.
ANZ also noted that India’s imports are levelling-off after being exceptionally strong last year.
“That said, the fundamental backdrop is still supportive, and industrial demand could return once China’s growth stabilises. Macroeconomic challenges continued to be supportive for gold and silver investors. We hold our bullish view and expect silver prices to reach $26 an ounce (oz) by the end of this year.”
Price direction for gold?
On gold, ANZ noted at the time of writing the price movement between around $1,950–$1,960, and said any moves from here will provide future price guidance.
“If the price bounces from here, the uptrend is likely to continue toward the previous high of $2,060/oz. This would increase the possibility of the price moving towards $2,100/oz, as the bullish upward channel is pointing in that direction.
“If, on the other hand, the price falls below $1,950/oz, it could trigger a sell-off and prices could fall to the next support of $1,800/oz.”
ANZ also noted that an increasing possibility of the Federal Reserve remaining hawkish and further upside in the US dollar are short-term headwinds for the gold price.
“Nevertheless, mounting economic growth risks and a structural downtrend in the USD should be structural supports in the medium and long-term.”
ANZ also noted that silver is likely to outperform once gold resumes its rally.
“We believe the recent decline in the gold price will encourage fresh buying, which is likely to be supported by lean speculative positioning. We keep our year-end gold price target unchanged near $2,100/oz.”
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