Silver and gold prices see cautious rebound, but analysts believe the likelihood of a sustained rise is slim

Source: Global Market Report

After persistent sell-offs, precious metals have recently rebounded. However, analysts point out that the road is fraught with challenges for gold and silver prices to return to the record highs set earlier this year.

In early trading on Wednesday, spot silver was quoted at $59.47 per ounce, up about 6.3% from $55.9/oz last weekend, while spot gold rose about 2.4% to $4119.04/oz during the same period.

ING Commodities strategists Warren Patterson and Ewa Manthey wrote in a research report released on Wednesday that the latest rally is driven by “dip buying after recent price weakness” rather than “any material changes in the geopolitical or macroeconomic environment.”

High interest rates and a strong US dollar have diminished the appeal of precious metals; meanwhile, the Iran conflict has pushed oil prices higher, causing market funds to flow into other asset classes and altering the overall market landscape.

Patterson and Manthey said, “Tensions in the Middle East continue to support precious metals, but the market is weighing two factors: on one hand, weaker US economic data, and on the other, the inflation risk brought by rising energy prices.”

The ING analysts added that gold prices will “likely continue to be influenced by energy market trends and US monetary policy expectations,” while silver “is expected to maintain relatively strong performance thanks to resilient industrial metals, combined with safe-haven demand.”

They pointed out, “Silver’s strength benefits from its safe-haven attribute, and the improving sentiment in the industrial metals sector is also supportive, with copper prices being particularly important.”

In contrast, analysts at Bank of America believe that, after gold's worst quarterly performance in 13 years in the three months ending in June, there is still further downside risk for gold prices.

Bank of America wrote in a July 16 research note: “The emergence of a death cross, high net long positions, and the current price action resembling previous major highs suggest gold may face a longer-lasting and deeper correction.”

UBS holds a skeptical view on silver’s rebound prospects and warns investors against building silver positions at this time.

This Swiss bank lowered its attractive entry price target for silver this week from around $55/oz to a range between $48–50/oz.

UBS strategist Dominic Schnider stated in a July 20 research report: “We believe resistance for silver could persist in the short term. Escalating tensions in the Middle East, higher opportunity costs for holding silver, and the sustained strength of the US dollar continue to suppress market sentiment. The macro environment lacks top-down momentum to drive investors into silver-long positions. Investment demand remains volatile, and silver prices have yet to establish a solid bottom.”