Gold Prices Establish New Support Zone, Silver's Solar Demand Revised Upward 

Ernest Hoffman   

December 04, 2023

Kitco News

(Kitco News) - The recent surge in gold prices was boosted by bets that we’ve arrived at peak interest rates, while the solar industry’s demand for silver saw another upward revision, according to the latest precious metals report from analysts at Heraeus.

“Traders are now pricing in that the Fed and the ECB will be more dovish in the first half of the new year,” they noted, which bodes well for gold but not for the broader economy.

“European CPIs came in softer than expected last week,” the analysts wrote, “signaling that the ECB was right to pause rate rises at its last meeting and that its monetary policy is working as intended.”

“The latest Fed interest rate futures imply a 40% probability that the US central bank will begin cutting rates by March 2024,” said the analysts, which represents a shift away from the ‘higher for longer’ narrative.

“As recently as mid-October, traders saw first cuts coming only in June,” they noted. This pivot in market sentiment served to weaken the U.S. dollar and helped to push gold prices to fresh all-time highs.

Heraeus also noted that the Israel-Hamas conflict has slowed outflows from gold-backed funds, though they still haven’t turned positive.

“Even as the geopolitical landscape in the Middle East has cooled somewhat, money is seeping back into bullion funds,” the analysts wrote. “Gold outflows from ETFs slowed in November, perhaps representing some improvement of investor sentiment, though the trend is yet to convincingly reverse. Year-to-date, gold funds have seen net outflows of 7.7 moz.”

Heraeus said that though outflows in November slowed to their lowest rate since April, net holdings still declined by 390,000 ounces. “This shows there is still ground to be made up,” they said. “A return to net inflows would show a reversion to the norm of ‘higher gold price = increase in holdings’ that has broken down since the start of the current rally in gold. If these trends realign, the gold price could be pushed even higher.”

The spot gold price finished last week 3.37% stronger at $2,067/oz, which was just below all-time highs, the analysts noted, before ultimately surging to new highs early in the Asian trading session on Monday morning.

“Gold rose as high as $2,146/oz, more than 3% higher than the previous intra-day all-time high of $2,082/oz,” they said. “The price has since given back those gains, though $2,000/oz to $2,050/oz could now act as a zone of support.”

Spot gold continues to oscillate within that range on Monday, last trading at $2,029.91, down 2.02% on the session at the time of writing.

Turning to silver, the analysts said the sheer magnitude of solar industry growth is becoming clear as 2023 draws to a close. “Global new solar installations are forecast to escalate by 64% to a record 413 GW this year,” they noted, which represents a significant upward revision from the previous forecast of 395 GW.

“Along with installations, silver demand from the solar power industry is expected to reach new highs this year of ~190 moz,” the analysts wrote. “As well as a much greater volume of installations, solar cell types with higher average loadings are becoming more popular owing to their higher efficiency,” the analysts said, but also noted that “thrifting of silver” to reduce costs in solar manufacturing is still ongoing.

“Growth in annual installed capacity in China has been the driver of the recent rapid growth,” they noted, “but installations outside of China are also forecast to accelerate.”

Heraeus pointed out that silver saw its third straight week of solid gains, with prices finishing November 11% higher than the previous month. “Thursday’s close above $25/oz was the highest monthly close since August 2021,” they said, with the spot price at $25.50 per ounce by the end of Friday. “This marked a significant milestone for the precious metal,” the analysts said.