Commodity trading: gold prices might go higher despite US dollar strength

Gold prices in commodity trading are influenced by factors such as currency strength, interest rates, inflation expectations, and geopolitical stability. Despite the current strength of the U.S. dollar, gold prices are expected to rise, driven by increasing demand from Europe and China. In Europe, economic uncertainties and geopolitical tensions have spurred investors to seek safe-haven assets, leading to higher gold purchases.

Meanwhile, in China, rising consumer interest and government policies favoring gold investment are bolstering demand. As both regions navigate economic challenges, the allure of gold as a hedge against inflation and currency fluctuations remains strong. This combination of factors is likely to support upward momentum in gold prices, regardless of the dollar's performance.

Gold performance in 2024

With gold prices soaring, overall demand on the mainland is affected, but the trend remains steady. While withdrawals from the Shanghai Gold Exchange (SGE) are showing improvement, they remain lower than both 2023 levels and the five-year average. In Q3 2024, SGE withdrawals were down 31% year-on-year at 305 tonnes, suggesting that annual gold demand in China could decline this year, even if withdrawals increase. For Q4 to surpass 2023 levels seems unlikely, even with stimulus measures in place.

The strength of the US dollar generally exerts downward pressure on gold prices. As the dollar appreciates, gold becomes more expensive for buyers using other currencies, which can reduce demand. Additionally, higher interest rates that strengthen the dollar often make gold, a non-yielding asset, less attractive to investors. However, gold also serves as a safe-haven asset during times of economic uncertainty, which can counterbalance the effects of a strong dollar. Overall, while a strong dollar typically leads to lower gold prices, various economic factors can influence this relationship.

Analysts highlighted that gold’s recent all-time highs have occurred despite the strength of the U.S. dollar, with European monetary policy continuing to bolster gains for the yellow metal. The European Central Bank recently cut interest rates for the third time, shifting its focus from inflation to growth. Ongoing monetary easing in Europe is likely to weaken the euro against other major currencies, supporting the euro gold price, which also hit a new all-time high last week. This year, gold prices have risen by nearly a third, surpassing the 30.9% increase seen in 2007. Overall, 2024 is shaping up to be a historic year for gold, potentially marking the best price performance in 45 years.

Silver price analysis

While silver ETF holdings have been growing recently, there is still potential for further increases. Despite silver prices approaching a 10-year high, current ETF holdings are similar to those from 2023. So far this year, there have been net inflows of 30 million ounces, a rise from cumulative net sales of 19 million ounces as of June.

Total holdings stand at 730 million ounces, indicating a relatively subdued response to the recent surge in silver prices. At their peak, silver ETF holdings exceeded 1 billion ounces, even when silver prices were 15% lower than they are now.

Silver is experiencing strong support that could help maintain its recent breakout above $33 per ounce. Factors such as lower real interest rates encourage investment in bullion, while China's economic stimulus efforts provide additional backing for silver's industrial demand. Analysts believe that investors have the potential to increase their holdings from current levels, but a clear breakout to new highs will likely be necessary to trigger this.

Last week, silver reached a new cycle high, closing 2.55% higher at $32.48 per ounce after four consecutive days of gains. Analysts noted that if silver closes above the resistance level of $32.94 per ounce, it could lead to a rapid upward movement.

On Friday afternoon, silver successfully broke above $33 per ounce, and by Monday morning, it had surpassed the $34 mark. At the time of this report, spot silver was trading at $34.073 per ounce, reflecting a daily increase of 1.07%.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.