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Bond yields weigh on gold prices, 5G rollout supports silver demand – Heraeus

Gold prices continue to face headwinds from elevated bond yields, while silver is set to benefit from the global 5G rollout for years to come, according to analysts at Heraeus.

In their latest precious metals report, the analysts wrote that the Federal Reserve has confirmed the markets’ assessment of the economy.

“Federal Reserve Chairman Jerome Powell dismissed the possibility of a rate hike in June during Wednesday’s FOMC meeting, though he reaffirmed his commitment to prioritising inflation containment given the lack of progress towards the 2% target rate,” they said. “Although the dollar remains strong, the last two weeks have seen a decline. However, immediately following the meeting, the probability of a cut to interest rates before the end of the year ticked incrementally higher.”

They also noted the unprecedented volume of central bank gold purchases in Q1. “Global central banks added 289.7 tonnes of gold to their reserves, marking a record high for the first quarter,” they said. “Still notably absent from the gold market are Western ETF investors, particularly European funds, which shed ~30 tonnes of gold from ETF holdings in April.”

The analysts pointed out that high-yielding bonds still appear to be more attractive to investors than the yellow metal. “However, as the prospects of rate cuts by the ECB rise, there could be a reversal in this trend.”

Looking at the price action, Heraeus noted the continued consolidation of gold prices after they rose 20% over the last two months. “The non-commercial net long futures position reached ~20.3 moz in the week of 23 April, similar to the highest levels seen when gold was at a much lower price in 2023,” they noted.

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“Although speculative positioning has climbed with the price, it is still well short of levels seen from 2020 to 2022,” the analysts said. “That leaves open the possibility of further expansion of positions. Gold’s recent price retreat also means that it is no longer overbought. Near term, the price could continue to consolidate but in the longer term the potential for higher prices remains.”

Spot gold bounced off support at $2,310 per ounce at 8 am EDT before shooting higher at the U.S. market open. It last traded at $2,320.17 per ounce at the time of writing, but is still down 0.16% on the session.

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Turning to silver, the analysts expect that the increasing demand for 5G technology will continue to support silver demand over the longer term.

“Silver is used in semiconductors, consumer electronics, automobile electronics and infrastructure hardware, which would all benefit from the penetration of a 5G ecosystem, given the necessity of higher-density infrastructure for good signal coverage,” they said. “In 2022, sales of 5G mobile devices marginally surpassed those of their 4G counterparts for the first time, capturing 53% of the market share compared to 4G’s 45%. In 2023, this gap widened further, with 5G device sales climbing to 60%, while 4G devices declined to 40%.”

The rollout of 5G infrastructure in emerging markets also bodes well for silver. “For example, key Indian telecom operators Reliance Jio and Bharti Airtel are targeting nationwide 5G coverage by 2024, a move that could significantly enhance applications in the world’s second-largest population.”

Heraeus noted that silver prices continue to track the price declines seen in gold and has now overshot the yellow metal. “The silver price fell below the $27/oz mark this week, with an even stronger pullback than gold.”

Spot silver continued to follow gold’s lead on Tuesday with a sharp rise into positive territory at the open, last trading at $27.411 per ounce at the time of writing.

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Source: Ernest Hoffman Kitco