Moving into the final quarter of 2023, the global financial landscape continues to evolve. Gold and silver have come under pressure from the strength of the US dollar, hawkish central bank policies and rising bond yields.
In the final days of September, gold fell below $1,900 an ounce, reaching the key level of $1,850, while silver sunk below $22 an ounce, breaking below the support zones of $22.50 and $22.2 an ounce.
This analysis will review the performance of gold and silver throughout September and cast a forward-looking eye on the potential market drivers for October 2023 and beyond.
Macroeconomic Scenario
The macroeconomic landscape for gold and silver remains challenging, as central banks worldwide continue to send hawkish signals to the markets. The US dollar has strengthened against major currencies like the Euro, the British Pound and the Japanese Yen.
Furthermore, bond yields have surged, raising the cost of holding commodities and other non-dividend or non-interest-bearing assets. The decline in gold and silver prices towards the end of September is a direct result of these factors, rather than a signal of waning investor interest in the precious metals sector.
Gold Price Analysis and Outlook
For most of September, gold prices showed very little volatility, hovering within a narrow range between $1,900 and $1,950. The price only dipped below $1,900 in the final days of the month, influenced by the prevailing high interest-rate environment. If bond yields remain at their current levels or rise further, gold prices might continue to face downward pressure.
Technically, the drop below the $1,890 an ounce support level has confirmed the current pressure on gold, opening space for a decline to $1,850. The next support zone is now placed at $1,810.
Conversely, if the price breaches the resistance zone between $1,930 and $1,950, we might witness a recovery. However, this scenario is contingent on central banks adopting a more dovish stance with investors focusing more on the news coming from the Federal Reserve and other major central banks rather than technical and graphical analysis.
Record Gold Prices for Yen and Renminbi
There are two sides to every coin. While the gold price has dropped in dollar terms, the same is not true for other currencies. Due to the strength of the dollar, gold has reached record levels against the Japanese Yen and Chinese Renminbi. In India, a significant consumer of gold bullion, the price recently surged to 160,000 rupees per ounce.
The contrasting performance in other national currencies is a reflection of their depreciation in dollar terms – and, these currency dynamics have a ripple effect on the global gold market. China and India, with their deep-rooted cultural affinity for gold, primarily in jewellery, are the world’s leading gold consumers.
Given these price shifts, it will be interesting to observe in the coming months how these currency-induced price dynamics could influence physical demand for gold in these nations.
Silver Price Analysis and Outlook
The silver price fell approximately 8% in September. Unlike gold, silver started October on a bearish trajectory, dropping from $24.50 to the $22.50-$22.80 support zone.
Buyers were notably active at these levels, prompting a price rebound in the month’s third week. However, the combined effects of rising yields and a robust US dollar halted this recovery, pushing silver prices back to the $22.50 mark. The decline of the price below this threshold confirmed the hawkish pressure on silver.
Central Banks in September
Central banks worldwide have maintained their hawkish rhetoric. In the middle of September, the European Central Bank implemented its tenth interest rate hike, setting the interest rate at a record 4.5%.
Shortly after, the Federal Reserve kept rates steady within the 5.25%– 5.50% range, but Chairman Jerome Powell hinted at potential rate hikes in late 2023 with space for other restrictive measures in 2024. The Bank of England also raised its rates to 5.25%, just 25 basis points below the Federal Reserve’s level.
In essence, central banks are actively combatting inflation through rate hikes, leveraging the economy’s resilience. However, the dynamics may shift in the upcoming months.
Central Bank Outlook: What to Expect in the Next Few Months?
The broad consensus among analysts is a bullish long-term outlook for gold and silver. However, the immediate future of gold is strictly related to central bank decisions and how the restrictive measures could continue to exert pressure on the precious metal.
As we approach the year’s end, it’s crucial to monitor central bank activities, especially the Federal Reserve’s final two meetings in 2023.
The upcoming meetings are set for November 1st and December 12th-13th. Current market predictions, based on the CME FedWatch Tool, suggest a 25% likelihood of a rate hike to 5.75% in the November meeting, increasing to 35% for the December FOMC summit.
In summary, while we might be nearing peak interest rates, the apex might still be on the horizon, with the first interest rate cut still far off in the distance. Once there’s more clarity regarding a rate peak, the prospects for gold and silver could brighten considerably.
Carlo is an external market analyst for Kinesis Money. With a credential background in Economic Finance and International Exchange (MA), Carlo’s critical analysis of gold and silver markets’ performance is frequently quoted by leading publications such as Forbes, Reuters, CNBC, and Nasdaq.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
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