Gold and Silver Hang Tough After “Double Whammy” Day

Precious metals’ fundamental drivers are intact despite headwinds, say strategists.

Bullion.Directory precious metals analysis 14 June, 2024
By Isaac Nuriani
CEO at Augusta Precious Metals

From that time through Thursday of last week, gold climbed 17% and was knocking on the door of $2,400 per ounce…a price it already had surpassed a couple of times during the period at issue.[1]

On a percentage basis, silver’s run was even more noteworthy. The white metal jumped nearly 40%, to more than $31 per ounce.[2]

So, why is Thursday significant? Because of what happened Friday.

On June 7, gold and silver suffered what one analyst called a “double whammy,” the emergence of decidedly metals-unfavorable news about two things: (1) prospective monetary policy and (2) ongoing central bank gold demand (viewed by many analysts as one of the principal drivers of metals strength for years now).[3]

Both gold and silver reacted sharply – and negatively – to the wave of concerning news that washed over each metal that Friday. The price of gold fell nearly 3% on the day…and the price of silver tumbled more than 6%.[4]

So, had the precious metals bull – on his feet and charging hard for months now – finally run out of steam?

Perhaps not.

For one thing, metals prices haven’t fallen any further since that notable Friday. Over the past week, gold’s price has remained basically where it was by the end of last Friday, holding fast at around $2,330 per ounce.[5]

Same with silver. By the end of the day last Friday, silver had dropped to around $29.50 per ounce. But as the price of gold has done, silver has managed to remain at that level…not resuming a meaningful upward direction, but not declining any further, either.[6]

Why not, though? After such substantial runs, surely both metals are due – even overdue – for a significant correction…aren’t they?

Not necessarily. And the reason for that is the centerpiece of this week’s article: that despite what clearly in the short term was interpreted by metals investors as bad news, it seems the underlying metals-positive narratives providing support to gold and silver remain intact.

This week, we’re going to look closer at that “double whammy” day and discuss in some detail just what it is that had metals so anxious last Friday. And then we’re going to address – with the help of some analysts – why the news may not be such a big a deal, after all.

Analyst: China May Have Paused, but “Nowhere Near Done Buying Gold”

So, what, exactly was last Friday’s “double whammy,” as Han Tan, chief market analyst at global wealth managers Exinity, called it?[7]

The first and more concerning blow of the two came in the form of news that the People’s Bank of China – a highly relevant and substantial buyer of gold – had decided to pause their gold purchases in May after a year and a half of particularly vigorous gold consumption.

“Gold lost altitude after newswires reported the People’s Bank of China after 18 months of non-stop buying paused their purchases in May,” Ole Hansen, head of commodity strategy at Saxo Bank, related in a note last Friday.[8]

It’s understandable why the news prompted so much consternation. Analysts have credited central bank gold demand for a great deal of the price support enjoyed by the metal over the last couple of years. Overall, central banks acquired a record amount of gold in 2022, nearly matched the total in 2023, and subsequently purchased more gold in the first quarter of 2024 than in any previous Q1 in history.[9]

And of those central banks purchasing so much gold, it’s the People’s Bank of China that’s been at or near the top of the list, coming in as the year’s second-largest purchaser in 2022 and the largest purchaser in 2023.[10] Which makes it understandable that gold – and, by association, silver – had such an adverse price reaction to the news of China’s time-out.

“My initial thought is that China, a major driver of the gold rally in the past year, is nowhere near done buying gold, but the pause also highlights they are humans, balking at the prospect of paying record prices,” Hansen said.[11]

News of China’s buying pause broke early morning that Friday. At basically the same time, another gold headwind kicked up.

That day, the Labor Department revealed the economy created a much-larger-than-expected 272,000 jobs in May…seeming to put a nail in the coffin of any realistic chance the Federal Reserve would be cutting interest rates imminently. Leading up to the official announcement of the jobs number, news began to emerge that the jobs-gain number was going to be far larger than anticipated. Metals began their decline at the time – in concert with the flash about the China purchase break, of course.[12]

As I noted toward the outset of this week’s article, the one-two punch on the day pushed gold down by nearly 3%, while silver dropped 6%. And at the time, it was unknown just how lasting the impact of the news might be – particularly the prospect that China could be ending its relentless string of gold purchases.

“The risk for gold bulls is that China’s voracious appetite for bullion has left the precious metal vulnerable to any potential shift in demand,” suggested Bloomberg.[13]

But the truth is, for all the “bad news” precious metals faced last week, both gold and silver are looking pretty darn good, thank you very much. The reason? Analysts say there’s been no material change to the underlying metals-positive narrative of either metal.

All the Fundamental Factors That Have Been Driving Gold and Silver Remain Intact, Say Strategists

“We still have geopolitical uncertainty, we still have inflation, and we still have government debt and spending rising uncontrollably,” Michelle Schneider, Director of Trading Education and Research at MarketGauge, said following last Friday’s apparent implosion. “These are all factors that continue to support gold and silver.”[14]

In an opinion piece for Kitco News titled “Nothing has changed for gold except the price,” precious metals journalist Neils Christensen also seemed to shrug off concerns about the possible implications of China’s decision to pause what has been its diligent buying of gold.

Looking at the reaction in the gold market, investors now believe that China’s central bank will never buy another ounce of gold again,” Christensen wrote. “China has been buying gold for the last 18 months; it’s ridiculous to expect that this trend would continue without some sort of pause.”[15]

Continuing, Christensen noted, “Stubborn inflation, geopolitical uncertainty, and diversification away from the U.S. dollar are reasons why central banks have voraciously bought gold and will continue to build their reserves. Even if gold purchases become more staggered, central bank demand will remain a solid pillar of support for the foreseeable future.”[16]

Krishan Gopaul, senior analyst at the World Gold Council, is in agreement.

“While China has positively contributed to the level of annual demand from the official sector, we are still confident that central banks as a whole will remain net buyers,” Gopaul said in a recent statement. “Buying has been broad-based, with several other central banks continuing to accumulate gold, even as the gold price has increased in recent months. As such, while central bank demand for 2024 may not reach the levels seen in 2022 or 2023, we still believe that it will remain healthy for the remainder of the year.”[17]

Silver’s most prominent narrative is that it could thrive this year on the basis of optimal supply-demand dynamics. And that idea appears very much intact, as well.

Unique Supply-Demand Dynamics Expected to Support Silver Prices, Going Forward

According to a recent report by Maria Smirnova of Sprott Asset Managers, an institutional investor specializing in natural resources, silver’s industrial demand, which now accounts for as much as 55% of its overall demand, is forecast to rise 9% this year to a new all-time high.[18]

Smirnova says that three industries, specifically – solar energy, automotive (including electric vehicles) and artificial intelligence – could prove to be key drivers of silver’s industrial demand in the years ahead. In fact, silver demand on the part of solar photovoltaic manufacturers is projected to rise by 170% through 2030.[19]

And according to Smirnova, the projected increase in industrial demand for silver is poised to occur against the backdrop of a profound supply shortage.[20] One of the anticipated consequences is an increase by 17% this year in the metal’s market deficit …a deficit now in its fourth consecutive year.[21]

And the upshot of all of this for silver prices, in Smirnova’s opinion?

“Higher prices for silver bullion,” the analyst says.[22]

Ultimately, the general properties of precious metals that have made them so popular recently – including their potential to serve as stores of value and uncorrelated assets – appear as though they could remain relevant through the foreseeable future, given the degree of economic and geopolitical uncertainty that persists. In the case of silver, which finds its demand rooted as much or even a little more in its utility to industry, the scenarios that are projected to catalyze the white metal on that basis remain every bit as viable.

Given this, investors who own one or both metals already may conclude it’s prudent to retain them. Some might even decide to expand their holdings. Others who don’t own any metals at this time may decide the outlook for gold and silver remains compelling enough to begin acquiring them – perhaps even through a tax-advantaged gold IRA. (Consult with qualified advisors about the appropriateness of adding precious metals to your portfolio, as well as the tax implications of IRAs).

Aside from investors deciding whether to include metals among their own inventory of assets, the larger point, as Kitco News’ Neil Christensen put it, is that it appears nothing has changed for gold except the price – and the same could be said of silver. Which means even if investors decide metals are not for them, the underlying drivers of metals activity may be destined to remain part of the economic landscape for some time and serve as reasons to encourage further optimization of portfolios, even if that’s done without the assistance of gold and silver.

[1] CNBC.com, “Gold COMEX (Aug′24)” (accessed 6/13/24).
[2] CNBC.com, “Silver COMEX (Jul′24)” (accessed 6/13/24).
[3] Jack Denton, Barron’s, “Gold Continues to Boom. The Major Buyer: Central Bankers” (April 25, 2024, accessed 6/13/24).
[4] CNBC.com, “Gold COMEX (Aug′24)”; CNBC.com, “Silver COMEX (Jul′24).”
[5] Ibid.
[6] CNBC.com, “Silver COMEX (Jul′24).”
[7] Myra Saefong, MarketWatch, “Gold suffers a ’double whammy’: strong U.S. jobs growth and pause in China buying” (June 7, 2024, accessed 6/13/24).
[8] Barbara Kollmeyer, MarketWatch, “Gold prices drop on reports China central bank halted a buying streak” (June 7, 2024, accessed 6/13/24).
[9] World Gold Council, “Gold Demand Trends Full Year 2023” (January 31, 2024, accessed 6/13/24); World Gold Council, “Gold Demand Trends Q1 2024” (April 30, 2024, accessed 6/13/24).
[10] Prableen Bajpai, Nasdaq, “Which Central Banks Bought the Most Gold in 2022?” (April 19, 2023, accessed 6/13/24); World Gold Council, “Gold Demand Trends Full Year 2023.”
[11] Myra Saefong, MarketWatch, “Gold suffers a ’double whammy’: strong U.S. jobs growth and pause in China buying” (June 7, 2024, accessed 6/13/24).
[12] Ibid.
[13] Yvonne Yue Li and Sybilla Gross, Yahoo Finance, “Gold Dips Below $2,300 as Jobs Dash Fed Bets, China Buying Pause” (June 7, 2024, accessed 6/13/24).
[14] Neils Christensen, Kitco News, “Gold price takes two massive hits, but fundaments remain strong ahead of FOMC meeting next week” (June 7, 2024, accessed 6/13/24).
[15] Neils Christensen, Kitco News, “Nothing has changed for gold except the price” (June 7, 2024, accessed 6/13/24).
[16] Ibid.
[17] Ibid.
[18] Maria Smirnova, Sprott, “Silver’s Critical Role in the Clean Energy Transition” (May 29, 2024, accessed 6/13/24).
[19] Ibid.
[20] Ibid.
[21] Polina Devitt, Yahoo Finance, “Global silver deficit to rise in 2024 due to higher demand, lower supply” (April 17, 2024, accessed 6/13/24).
[22] Smirnova, “Silver’s Critical Role.”

This article was originally published here

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