Gold’s deleveraging pullback spurs fresh demandSpot gold's initial response to the steepest US trade barriers in more than 100 years was a move to a fresh record high of USD 3,167 per troy ounce on heightened inflation risks, before surging volatility in response to collapsing stock markets saw traders turn their attention to capital preservation and deleveraging—the dash-for-cash focus hurt all leveraged positions across the commodities sector, including those in silver, which experienced a brutal 16.5% top-to-bottom slump, but also bullion, which despite its safe haven label during times of turmoil fell by around 4% before finding solid support around USD 2,950.
As the dust begins to settle following one of the worst risk reduction periods in recent years, demand for silver and especially gold has re-emerged, with gold has reaching a fresh all-time-high above USD 3,200, while silver has managed to retrace half of what was lost during the first week of April, both strongly suggesting that underlying concerns remain.
A combination of heightened global economic tensions, the risk of stagflation – a combination of lower employment, growth and rising inflation - a weaker dollar, will, in our opinion, continue to support bullion, and to a certain extent also silver. Adding to this is a market that is now aggressively positioning for the Fed to deliver more cuts this year—at current count more than 75 basis points of easing by year-end, and not least continued demand from central banks and high net worth individuals looking to reduce or hedge their exposure to US government bonds and the dollar.
With all the mentioned developments in mind, we maintain our forecast for gold reaching a minimum of USD 3,300 this year, while silver, given its industrious exposure and recession worries, may struggle to materially outperform gold as we had previously forecast. Instead, based on the XAU/XAG ratio returning below 90 from above 100 currently, we see silver eventually making it higher towards USD 37.
