Gold prices are expected to maintain a positive trajectory throughout this month, although investors should brace for periods of volatility, according to market experts. This outlook comes amidst a significant rally in silver prices and heightened anticipation surrounding the upcoming US Federal Reserve policy meeting.
Silver Steals the Show with Spectacular Rally
The past week witnessed a powerful surge in the bullion markets, particularly for silver. The spot price of silver roared from below $50 to around $58.85 per troy ounce, significantly outperforming gold. This dramatic rise was primarily fueled by a persistent shortage of the white metal in global markets and increasing expectations of an interest rate cut by the US Federal Reserve.
The price movement caused the Gold/Silver ratio to drop to an annual low of just over 73. Underpinning the silver shortage are critically low inventory levels. Silver inventories on the Shanghai Futures Exchange fell to their lowest in a decade, while those on the Shanghai Gold Exchange hit a more than nine-year low last week. This tightness was triggered by China's record exports of 660 tons of silver in October, which reportedly went to London to address shortages there.
Further tightening supply, Silver Exchange-Traded Funds (ETFs) tracked by Bloomberg recorded substantial inflows of approximately 290 tons last week, withdrawing physical metal from the market and contributing to the price spike.
Central Bank Demand and Economic Data in Focus
While silver captured headlines, demand for gold remained robust. Data from the World Gold Council showed that central bank gold purchases in October totaled 53 tonnes, a 36% increase month-on-month, continuing the strong buying trend seen all year. The buying was concentrated among a few banks, led by the National Bank of Poland, which became active again during the month.
On the economic front, data released on Monday indicated that US manufacturing activity contracted for the ninth consecutive month in November. Investors are now keenly awaiting key US data releases for clues on the Fed's next move, including Wednesday's November ADP employment report and Friday's delayed September Personal Consumption Expenditures (PCE) Index.
Market Awaits Fed Decision and Potential Policy Shifts
All eyes are on the Federal Reserve's meeting scheduled for December 10th. Traders are currently pricing in an 87% chance of a December rate cut, according to the CME's FedWatch tool. Recent dovish comments from Fed officials, including Christopher Waller and John Williams, have reinforced this market expectation, which drove much of last week's bullion market movement.
Markets are also awaiting President Donald Trump's announcement of the new Federal Reserve chairman. Reports suggest White House economic adviser Kevin Hassett has emerged as a frontrunner. Hassett, similar to Trump, is known to favor lower interest rates.
The main trend for bullion remains upward for the week, though volatility and profit-booking, especially in silver, could persist. A weaker US Dollar, with the dollar index settling at 99.479 (down 0.72% last week), could provide support at lower price levels. Traders are also monitoring the potential for tariffs on silver after the US Geological Survey added it to its list of critical minerals in November. Fears of a sudden premium for US silver, coupled with 75 million ounces leaving Comex vaults since early October, may keep sentiment volatile for silver prices.
The weekly bias, as per expert analysis, is sideways for gold and volatile for silver. The broader monthly bias remains positive, contingent on developments from the crucial Fed meeting.
