Precious Metals Rise as Investment Demand Surges Despite Strong US Dollar
Recent data from the World Gold Council highlights a significant surge in investment demand for gold. The total demand for this precious metal has increased by 3% year-on-year, reaching 1,313 tons. This growth is driven primarily by strong inflows into Exchange Traded Funds (ETFs) and an uptick in retail gold investments.
Factors Behind the Rise in Precious Metal Investments
The World Gold Council attributes the heightened demand to a growing fear of missing out among retail investors, amplified by ongoing geopolitical concerns. Interestingly, the rapid price increase of gold has not noticeably deterred purchasing activity.
Central Bank Purchases Forecast
The Council maintains a positive outlook for the remainder of the year. They predict central bank purchases will remain substantial, estimating between 750 to 900 tons. Although this projection indicates a decrease compared to last year, it aligns with observed purchasing patterns since the beginning of the year, underscoring continuing institutional demand for gold reserves.
Impact of US-China Trade Relations
Recent developments in US-China trade relations have also influenced market dynamics. The Trump administration announced a year-long agreement with Beijing concerning crucial minerals and rare earth elements. As part of the deal, tariffs on fentanyl-related imports have been halved to 10%, while China committed to reducing fentanyl production and resuming purchases of American agricultural products, including soybeans.
Dollar Strength and Its Effects
These trade developments, combined with what markets perceive as hawkish comments from Federal Reserve Chairman Jerome Powell, have resulted in consecutive daily gains for the US Dollar Index. The index rose by 0.41% and 0.38% on subsequent days and peaked at 99.72, a level not seen since August 1. Typically, a strong dollar exerts downward pressure on commodity prices; however, both gold and silver have shown remarkable resilience.
Silver and Gold Price Movements
- December silver futures on the Comex rose by 3.17%, trading at $48.75 per ounce.
- Spot silver increased by 2.84%, reaching $48.89 per ounce.
- The price gap between spot and future prices indicated a return to backwardation, reflecting strong demand exceeding available supply.
- Gold followed suit with a more pronounced price surge, gaining nearly $100 in one day.
- December gold futures on Comex climbed by 2.51%, reaching $4,039.80 per ounce.
These price increases have pushed both futures and spot gold prices above the critical psychological threshold of $4,000 per ounce, reinforcing positive sentiment in the precious metals market.
