Spot gold prices continue hovering above the critical support level of $4,000 per ounce, but one investment institution forecasts that gold will trend lower by year-end as the Federal Reserve maintains a relatively tight policy stance; silver faces even greater downside risk, with weakening industrial demand compounded by high interest rates making its outlook more bleak.
In its latest quarterly metals report released on Wednesday (October 28), Sucden Financial projects that gold prices will test support near $3,900 per ounce ahead of the Fed's December monetary policy meeting, while silver could fall to the $50-$53 per ounce range due to persistent tightening pressure, with markets pricing in nearly an 80% probability of a December rate hike. Despite the bearish near-term outlook, Sucden expects both precious metals to stabilize in early 2027, when the Fed approaches the end of its tightening cycle, with gold potentially recovering to $4,200-$4,300 by mid-January and silver rebounding to $57-$60.
Analysts noted that the ongoing Iran conflict is creating a difficult environment for precious metals, as elevated energy prices fuel inflation pressures, keeping U.S. Treasury yields and the dollar at high levels. Gold has not benefited from traditional safe-haven demand but instead finds itself in a difficult position, as investors focus on the inflationary consequences of the Middle East conflict and its implications for U.S. monetary policy. Analysts wrote in the report: "In the final quarter of 2026, commodity markets once again encountered macro pressures, with the Iran conflict driving up energy costs and further complicating the monetary policy outlook." Sucden pointed out that Brent crude oil prices broke through $110 per barrel, and the inflationary shock from the conflict has become the dominant factor driving precious metals, with persistently high energy prices potentially forcing the Fed to tighten policy further.
This outlook comes as the U.S. economy continues to show resilience despite early signs of weakness in the labor market. Sucden estimates that third-quarter economic growth was approximately 3.5%, supported by artificial intelligence investment and relatively healthy consumer spending. Meanwhile, headline inflation rose to 3.7% in September, producer prices recorded their largest monthly increase since 2022, and nonfarm payrolls added only 29,000 jobs in September, with hiring momentum stalling even as the unemployment rate remained at a relatively low 4.2%. For gold and silver, the combination of slowing employment and elevated inflation creates a difficult environment, where weakening economic activity would typically favor rate cut expectations, but energy-driven inflationary shocks are limiting the Fed's ability to ease monetary conditions.
Despite short-term headwinds, Sucden stated that gold continues to benefit from relatively strong underlying investment demand, particularly from central banks and exchange-traded funds (ETFs). Analysts noted that central banks purchased an estimated 289 tonnes of gold in the second quarter, including unreported transactions, with official sector demand strengthening notably in recent months. "Official sector demand remains the clearest fundamental floor for gold." China remains the largest buyer, with the People's Bank of China adding 23 tonnes in September, bringing its year-to-date accumulation to 103 tonnes and extending its buying streak to 23 months; Poland is also a significant source of demand, though its purchase pace may slow as its reserves approach the 700-tonne target. Global gold ETF holdings reached a record 101.55 million ounces in mid-October, remaining near approximately 101 million ounces even as prices pulled back. However, speculative investors have become increasingly cautious, with managed money net long positions falling to a four-month low. Analysts said this divergence indicates that long-term investors continue to add holdings during price weakness, while short-term traders are reluctant to establish significant long positions. Sucden cautioned, however, that central bank and ETF buying alone cannot counter the impact of renewed hawkish monetary policy pricing, and a sustained recovery above $4,300 would likely require more pronounced declines in oil prices, Treasury yields, and the dollar.
While gold benefits from central bank accumulation, Sucden stated that silver faces a more challenging outlook due to its greater sensitivity to interest rates combined with weakening industrial consumption. Silver has fallen sharply from its record high of $121.62 per ounce in January, trading near $54 in the final week of October, approximately 55% below its peak; in the week ending October 23, silver futures fell nearly 6% while gold declined about 4%, highlighting silver's greater sensitivity to shifts in monetary policy expectations, with the gold-silver ratio widening to approximately 74. Citing data from the Silver Institute's "World Silver Survey 2026," analysts expect industrial silver fabrication demand to decline 3% this year to 639.6 million ounces, accounting for approximately 57% of total silver demand. The solar sector is expected to see the largest decline, with silver consumption projected to drop 19% to approximately 151 million ounces as manufacturers reduce silver usage in photovoltaic cells and increasingly adopt copper-based technologies. Although demand from electric vehicles, power grids, and data centers continues to expand, these sectors are unlikely to fully offset the decline in solar as well as weakening jewelry and silverware demand. The global silver market is expected to record its sixth consecutive annual supply deficit, with demand exceeding supply by approximately 46 million ounces, but this relatively modest shortfall is unlikely to offset the near-term impact of restrictive monetary policy. Silver-backed ETF holdings stand at approximately 805.8 million ounces after net selling this year, contrasting with continued accumulation in the gold market; declining COMEX registered inventories and limited freely available silver in London could expose the market to renewed physical tightness. Analysts said relatively light speculative positioning could create conditions for a short-covering rally, but ultimately, similar to gold, a sustained silver recovery depends on whether investors become convinced that central banks have completed this tightening cycle.
On one side, central bank buying has built a solid floor; on the other, energy-driven inflation and high interest rates weigh heavily. Gold prices are hovering around the $4,000 mark, while silver is dragged deeper by the chill of industrial demand. Each dip in precious metals before year-end tests just how far the Fed's tightening path can still go.
Spot gold weekly chart. Source: Yihuitong. As of 12:15 Beijing time on October 29, spot gold was quoted at $4,036.85 per ounce.
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