:max_bytes(150000):strip_icc()/GettyImages-2259084472-e70400d326864e54bcf3446cc23b7946.jpg "After Their Worst Day Since 1980, What’s Next For Gold and Silver?")
:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2259084472-e70400d326864e54bcf3446cc23b7946.jpg)
Key Takeaways
- The main structural drivers of demand for gold remain intact, according to several Wall Street analysts who stood by their bullish gold price forecasts on Monday.
- After a spectacular run-up last month, gold and silver prices were primed to fall spectacularly, which they did last Friday after President Trump nominated Kevin Warsh to lead the Federal Reserve.
Buying the dip was a profitable strategy for stock investors last year. Could it be the same for precious metals buyers this year?
Several major banks stood by their bullish price forecasts after gold and silver on Friday suffered their worst sell-offs since 1980. JPMorgan on Sunday raised its year-end gold price forecast to $6,300 a troy ounce, while Deutsche Bank reiterated its call for gold to end the year at $6,000. Spot gold was changing hands at $4,700 late Monday afternoon.
Michael Hsueh, head of metals research at Deutsche Bank, said in an appearance on CNBC Monday that last week’s rout was “purely tactical” and was not a signal of a “durable, fundamental shift” in precious metals prices.
Why This Is Important
Gold is a traditional safe haven asset, valued by investors as a hedge against inflation and market turmoil. The past year has brought plenty of turmoil, which helped to fuel a run-up in gold prices that some investors expect to continue at a more modest pace this year.
“There’s a strong speculative overlay that is distorting prices, as we’ve seen in the last couple days,” said Hsueh. “But we would certainly remain constructive on gold over a one-year timeframe, and $6,000 doesn’t seem extraordinary or unachievable this year.”
Gold and silver prices soared last year, driven by global uncertainty about U.S. policy, fear that tariffs would reignite inflation, and a weaker U.S. dollar. The price gains accelerated last month as investors chased momentum.
While some late buyers may have been burned by last week’s rout, many experts say the structural forces driving gold prices remain intact. Central bank demand, which Hsueh called one of the “linchpins” of gold investor sentiment, skyrocketed in 2022 when the U.S. froze Russia’s dollar-denominated assets in response to its invasion of Ukraine. Deutsche Bank expects central banks to continue to stock up on gold to hedge against an increasingly fractured and volatile geopolitical landscape.
Peter Berezin, chief global strategist at BCA Research, said in a note on Monday that President Trump’s nomination of Kevin Warsh to lead the Federal Reserve—the event that’s widely believed to have sparked Friday’s sell-off—”only adds to the downward pressure on gold prices.” The prospective chair has historically been more hawkish than the other candidates under consideration. Nonetheless, BCA is still bullish on gold, “but will consider taking partial profits on any strength.”
Silver, which outpaced gold in the run up to last week, is a different story. “It is hard to escape the conclusion that its meteoric rise and subsequent fall were amplified by speculative Chinese trading plus a bunch of Crypto Bros getting bored with Bitcoin,” wrote Berezin.
Silver’s industrial applications, including in semiconductor packaging and solar panels, should support future demand. But, even before Friday’s crash, analysts were predicting silver prices would crater further than they already have.
“Silver is almost guaranteed to drop ~50% from these levels,” wrote former JPMorgan analyst Marko Kolanovic early last week, when spot silver prices hit nearly $115 an ounce. Silver traded at about $80 on Monday afternoon, and is still up 150% over the past 12 months.
As for gold, despite losing 16% of its value since hitting an all-time high of around $5,600 last Thursday, it remains up about 65% over the past year.
