On Monday, January 12th, during the Asian trading session, precious metal prices continued their upward trajectory. Spot gold broke through the $4,600 per ounce barrier for the first time ever, accumulating a gain of $280 for the first month of the new year; concurrently, spot silver surpassed $83.9 per ounce, eclipsing the previous two-week high to set a fresh all-time record, with its intraday surge approaching 5%.
Multiple factors are converging to propel gold and silver to unprecedented levels: the US non-farm payroll data released last Friday fell short of expectations, reinforcing market anticipations for further interest rate cuts by the Federal Reserve; escalating geopolitical tensions are adding to the bullish sentiment; Federal Reserve Chair Jerome Powell indicated that the central bank had received a grand jury subpoena from the Department of Justice, threatening criminal charges over his testimony last June concerning the Fed headquarters renovation, which contributed to a slight weakening of the US dollar in Asia; simultaneously, the US Supreme Court failed to rule on the tariffs associated with former President Trump.
Furthermore, both gold and silver are poised to be extremely sensitive to the annual rebalancing of major commodity indices, including benchmarks like the Bloomberg Commodity Index (BCOM) and the S&P GSCI. According to some estimates, these indices may need to sell approximately $5 billion worth of gold and silver to readjust their weightings.
The good news, however, is that this rebalancing process is scheduled for completion this week, and despite the associated downside risks, many analysts assert that the broader fundamental underpinnings supporting the metals remain robust. For numerous analysts, the strategies they employed last year continue to hold relevance, implying that buying on dips will likely occur quite swiftly.
While index rebalancing might not grab headline attention, it has a tendency to remind the market who truly holds the reins. Particularly for silver, with industrial consumption and investor demand continuing to compete for a dwindling supply, it is difficult to envision any significant sustained downtrend. No matter how much the market might wish otherwise, no new silver mines can be brought online within the next few months to alleviate the persistent supply crunch.
Should silver inventories in the United States begin flowing to other markets, such as London, market liquidity would indeed improve; however, this does not address the fundamental issue: there is simply not enough silver to meet the relentless demand. In this environment, there is a growing expectation that silver prices could easily test and exceed the $100 per ounce mark.
Meanwhile, gold continues to stand as the ultimate geopolitical safe-haven asset, especially as the US government appears to be pursuing a new international policy based on "might makes right." Analysts project that this new era of gunboat diplomacy and the weaponization of economic tools will continue to compel nations to diversify away from the US dollar. Many analysts anticipate that it is only a matter of time before gold prices reach $5,000 per ounce this year.
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