September 29, 2022

Gold and silver prices have fallen sharply over the past several trading days. The factors behind the decline are clear: Rising interest rates amid shifting financial market consensus that the economy, while a mess, is not teetering on the brink of collapse. 

Related to that, the forceful approach of the Fed, the Bank of England, and others toward containing inflation has convinced markets that interest rates will continue to rise for a while yet and that inflation, already showing signs of peaking, can be and most likely will be brought under some control in the next few quarters. 

We can say with confidence that this is the set of factors behind the declines in gold and silver prices because gold and silver have fallen in line and at the same time as a broad array of equities, bonds, currencies, and commodities. 

This is nothing isolated in the fundamentals of gold and silver. This is a broad re-alignment of investment market sentiments toward the shape of the economy globally and within the United States at present and in the near future. 

CPM has been writing since the middle of July that a drop as low as $1,650 was possible between then and October. Prices fell below $1,650 on 15 September and touched $1,628 on 27 September. Silver dropped as low as $18.32 that day. 

Prices may remain under pressure for a while longer, along with the prices of other assets. There is a heightened level of uncertainty across financial, economic, and political realms at present which could drive asset prices lower still, or dissipate quickly. Good arguments can be made to support both a bounce off this level as well as a break below this level.

The strength in the U.S. dollar, the relative strength in the U.S. economy compared to other major economies, and higher U.S. Treasury bond yields are expected to weigh on gold and silver prices.

In addition to economic and currency market trends weighing on gold and silver, the potential for some alleviation in international political tensions due to developments in the U.S., Russian, and Chinese governments over the next six weeks may also add to short-term downward pressures on gold as a safe haven asset. 

CPM continues to think that various political factors ranging from those between Russia and the West over Ukraine, the Chinese National Communist Party Congress in the middle of October, and the U.S. mid-term elections in November are all factors that could potentially drive gold prices lower in the near term, but not necessarily represent longer term negatives for gold. Developments in any of these governments hold the potential to cause investors to resume higher buying volumes for gold and silver in the short term, or to back away further. Additional uncertainties in Europe, following Italy’s vote on 25 September, and in the United Kingdom once the Queen’s mourning period is past add to the uncertainties. 

Longer term, CPM expects economic and political developments to continue to deteriorate, which should be expected at some point to lead to stronger gold and silver investment demand and higher metal prices. That may emerge over the course of October, or such a shift in financial market attitudes may not occur until later in the fourth quarter or in the first quarter of 2023.

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Notes:

1. GBI contact: www.gbi.co
2. CPM contact : www.cpmgroup.com, [email protected]
3. Historical and current GBI reports produced by CPM are available at CPM’s website (partially at present, a complete set soon). They also will be available at CPM’s Bloomberg page soon.
4. Sources: CPM Group is solely responsible for the research and analysis content.
5. Charts data sources: CME Group, Bloomberg, CPM Group.