Returning dollar headwinds for gold and silver
Carsten Menke, Commodities Research Analyst, Julius Baer
Better-than-expected economic data out of the United States provided support to the US dollar yesterday, which weighed on gold and silver. Prices were down 1.7 per cent and 3 per cent. While gold is still up more than 5 per cent for the year, silver almost erased all of its gains. As outlined earlier, we believe that most of these gains had been due to doubts over the US growth outlook and were driven by a weaker US dollar as well as improving sentiment in the futures market. Both of these drivers started to reverse more recently. The US dollar has rebounded, supported by the solid economic backdrop in the United States and rising interest rates. Market sentiment has normalised again, leaving less downside from position squaring. A comeback of last year’s growth and reflation euphoria is rather unlikely in our view unless there are positive political surprises.
Due to the persistent weakness in industrial demand, silver is unlikely to develop its own market dynamics and decouple from gold. It should continue trading as ‘poor man’s gold’.