Yesterday, gold and silver suffered heavily with prices down 3.4% and 5.4%.
For gold, it was the biggest sell-off in more than three years and prices traded below $1,300 per ounce for the first time since June. It was most likely triggered by a strengthening US dollar and extended by technical selling in the futures market.
Speculative futures positions had been on excessive levels for quite some time and a further unwinding as well as a spill-over into the physical market are key downside risks to watch. Inflows into physically backed products have been drying up as of late.
Against the backdrop of receding growth risks and a stronger US dollar, we maintain a cautious view on gold. We do not see the recent correction as a buying opportunity – despite the upcoming US presidential elections.
We believe that medium to longer-term upside should only materialise if Trump wins and turns out to be an ‘unguided missile’. In this unlikely case, uncertainty in financial markets should rise and lead to renewed safe-haven demand for gold. If Trump wins and is able to boost growth while accelerating inflation is accompanied by rising interest rates, gold should come under heavy pressure.
Likewise, we do not see a buying opportunity for silver. We remain bearish and expect prices to fall towards $17 per ounce by the end of the year.
Carsten Menke is Commodities Research analyst at Julius Baer