Since March, precious metals have started a strong upward trend, and in May, precious metal prices have reached a new high in nearly a decade! Last Friday, silver prices fell significantly. According to the Commodity Market Analysis System of the Business Society, the daily average price of silver spot market fell by 5.11% on the 12th, and the daily average price of gold spot market fell by 0.45%. Will a significant drop in silver prices drive the entire precious metal sector to turn?
Firstly, let’s review the main logic of this round of market and the dominant market:
Gold prices hit a new 10-year high
After hitting a new 10-year high, gold prices fluctuated slightly downwards. According to the commodity market analysis system of the business community, the spot market price of gold will be 451.23 yuan/g on May 12, 2023, 1.47% higher than the average price of the spot market before the festival, and 8.96% higher than the beginning of March (March 1).
Overall, the price of precious metal gold is currently at an absolute high during the same period in history. On the contrary, silver is not only currently at its highest level in the past decade, but also has experienced a relatively high price increase in the past year.
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The price of silver has increased by 32.79% compared to its low level in the past year
According to the commodity market analysis system of the business community, the average price of silver in the market will be 5441.67 yuan/kg on May 12, 2023, down 2.54% from the beginning of the month, but still 11.88% from the beginning of March (March 1), up 1.81% from the early average price of 5345 yuan/kg in the spot market at the beginning of the year (January 1). The low point in the past year appeared on July 18, 2022, and the current price has increased by 32.79% compared to the low point.
Comparison of precious metal gold and silver price trends in the past year
In 2022, the rise and fall trends of precious metal gold and silver have converged, but the decline in silver was deeper from April to August, and the recent recovery has been more significant. In December, silver continued its strong trend last month, and gold began to consolidate at high levels. In 2023, precious metal gold and silver have consolidated at high levels, with a slight decline in February. Since March, precious metal prices have started to rise. Due to the significant upward trend of silver, the recent increase in precious metals has returned to a similar level.
The main driving logic for the upward trend of precious metals since March:
1. Macro factors
There are expectations of easing monetary policy tightening: the Federal Reserve has raised interest rates to historic highs, narrowing the space for further rate hikes; The May rate hike data shows that the federal interest rate target range has been raised by 25 basis points to the level of 5% -5.25%. This is the tenth consecutive rate hike by the Federal Reserve since March 2022 and the third consecutive rate hike at the slowest pace since March last year. The current federal interest rate has reached its highest level since 2007.
The risk of economic recession in Europe and the United States has increased. Continued economic concerns and the US debt ceiling impasse, combined with the US banking crisis, have led to a high risk aversion in the market.
2. Strengthening of monetary attributes:
Due to geopolitical factors, the United States has abused its dominant role in the US dollar and international trade payment system, leading to strong demand for gold from global central banks and strengthening the monetary attributes of precious metals. According to data from the World Gold Council, global central banks’ gold purchases reached a record high of 1136 tons in 2022, and this trend continues in 2023. In the first quarter of 2023, global central banks maintained net purchases of gold, with central banks and other institutions purchasing 228 tons of gold in the first quarter, a year-on-year increase of 176%. Among them, the Singapore Monetary Authority purchased 51.8 tons of gold in the first two months of this year; The People’s Bank of China has increased its holdings of gold for six consecutive months. Since the People’s Bank of China started this round of additional purchases of gold last November, the gold reserve of the People’s Bank of China has increased from 62.64 million ounces to 66.76 million ounces at the end of April this year, with a cumulative increase of 4.12 million ounces, including 57.85 tons of gold in the first quarter.
3. Domestic physical consumption is expected to rebound
According to the latest statistics from the China Gold Association, the national gold consumption in the first quarter of 2023 was 291.58 tons, an increase of 12.03% compared to the same period in 2022.
Among them: 189.61 tons of gold jewelry, a year-on-year increase of 12.29%; 83.87 tons of gold bars and coins, a year-on-year increase of 20.47%; Industrial and other gold consumption reached 18.10 tons, a year-on-year decrease of 16.90%.
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Market driven logical variables:
The Federal Reserve raised interest rates by 25BP in May, and overall, it is still in the interest rate hike cycle in the short term. Before the expected rate hike is falsified, the upward space for precious metals has always been constrained. Early market expectations for the Federal Reserve’s interest rate cut have cooled. Although the employment data will not lead to the Federal Reserve raising interest rates in June, it is enough to calm those who are eager for the Fed to cut rates soon. The longer US interest rates remain high, the more pressure they put on non interest bearing gold.
Recently, the US CPI and PPI have fallen beyond expectations, and the number of first-time applicants for unemployment benefits has unexpectedly increased. After the Silicon Valley banking incident, although the market’s expectation of the Federal Reserve suspending or even lowering interest rates to alleviate the banking crisis has increased, causing the US dollar index to weaken in the past period of time, the government’s borrowing behavior after the debt ceiling crisis has once again put pressure on US dollar liquidity. The short-term rebound in the US dollar index has put some pressure on precious metal prices.
Will the significant decline in silver prices drive the entire precious metal sector to turn around?
At present, the price of silver is at its highest level in nearly a decade, but there is still a gap compared to the high light period of silver in 2011. After the high price of silver, the price plummeted significantly on the 12th, mainly due to the stronger nature of silver commodities, market concerns about economic recession, and expectations of relatively weak physical demand, which strengthened the demand for high profits to be eliminated. After the release of emotions, it is expected that the monetary attribute of precious metal silver will return to its dominant position. It is expected that precious metal prices may experience weak upward trend in the short term, with high volatility and consolidation being the main trend, and the medium to long term remains bullish.
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