The Turbulent Scene of the Gold and Silver Markets: The Logic Behind the Fluctuations and Outlook

In the global financial markets in June, the prices of gold and silver fluctuated sharply, becoming the focus of attention for investors and market analysts. The price of gold remained in a range of high levels, while the price of silver fluctuated significantly after reaching a 13-year high. This reflects the complex interaction of various macroeconomic, geopolitical and market supply-demand factors.

(1) Gold: Volatility Amidst Risk-aversion and Macroeconomic Competition

The price of gold experienced several fluctuations in June. On one hand, the ongoing geopolitical tensions, such as the escalating conflict between Iran and Israel in the Middle East and the renewed intensification of the Russia-Ukraine conflict in the Donbas region, have continuously provided support for gold as a safe-haven asset. If there is a further deterioration of geopolitical risks, the safe-haven funds will quickly flow into the gold market, driving up the price. The global gold ETF holdings have been net inflows for three consecutive weeks, and the sales of the Eagle Wing Gold Coin issued by the US Mint have increased by 45% year-on-year, which is an intuitive manifestation of investors' risk-averse sentiment.

On the other hand, macroeconomic data and expectations regarding the Federal Reserve's monetary policy also exert a strong counterbalancing force on the gold price. The US non-farm payrolls data in May exceeded expectations, with 272,000 new jobs added, far exceeding the expected 185,000. Although the unemployment rate rose slightly to 4.1%, but the salary growth rate still maintained a resilience of 0.4% on a month-on-month basis. This data strengthened the market's expectation of "high interest rate resilience". The US dollar rebounded, US bond yields jumped, and the price of gold assets denominated in US dollars was under pressure. At the same time, the US core PCE price index still rose by 2.8% year-on-year, far exceeding the Fed's 2% target, which again caused market disagreement over the direction of the Fed's monetary policy.

The Federal Reserve's interest rate meeting on June 17-18 became a crucial turning point. If the meeting signals that there will be only one interest rate cut this year or that it will be postponed until the fourth quarter, the US dollar and US bond yields may rise further, and the short-term downward pressure on gold will increase; conversely, if Powell mentions that the trend of inflation decline is clear or that economic data fluctuations require flexible responses, the expectation of interest rate cuts will return, and the long-term allocation value of gold will be strengthened. From the supply-demand structure of the global gold market, the growth rate of global gold production has slowed down, while the "gold purchase spree" of global central banks is still ongoing. Emerging market central banks continue to buy gold to diversify their foreign exchange reserves and risks, providing a solid bottom support for the gold price.

(2) Silver: Fluctuations under the Interaction of Industrial Attributes and Risk-aversion Investments

Silver also performed well in June, with its price reaching as high as $37.405 per ounce, setting a new 13-year high. However, it then experienced significant fluctuations. The driving force behind the increase in silver prices comes from multiple aspects. Firstly, there is the demand for restoring the gold-silver ratio. Previously, the gold-silver ratio soared above 100, far exceeding the historical average range of 60-80. As the price of gold rose, the demand for the valuation restoration of silver became strong, attracting capital inflows.

The unique industrial properties of silver also provide strong support for its price. In industries such as photovoltaics, electric vehicles, and electronic devices, silver is an important raw material. Especially in the manufacturing of solar panels, silver is an indispensable core material. With the rapid expansion of the global photovoltaic industry, the industrial demand for silver continues to increase. Since 2021, the global silver market has experienced a continuous supply gap for four consecutive years. The supply side lacks elasticity, which further exacerbates the imbalance between supply and demand, and further drives up the price.

Furthermore, in the context of increasing global economic growth uncertainty and rising risk aversion, silver, as an asset with both hedging and investment attributes, has also gained favor among investors. However, after reaching a peak on June 18th, the price of silver experienced a correction. Part of the reason was that the price rose too rapidly in the short term, and investors had a strong desire to take profits. Programmed trading triggered stop-loss orders, leading to a chain of selling. The statement from the Federal Reserve's monetary policy meeting also led to a slight adjustment in market expectations for interest rate cuts, with the strengthening of the US dollar, which in turn impacted the price of interest-free assets such as silver.

Looking ahead, the gold and silver markets will remain highly uncertain due to the complex interplay of various factors. For gold, geopolitical risks are unlikely to be completely eliminated in the short term. As long as there is a risk of escalation in conflicts, the protective value of gold will persist. However, changes in macroeconomic data and adjustments in the monetary policy of the Federal Reserve will still have a direct impact on the price of gold. Investors need to closely monitor inflation data, employment data, and the statements of Federal Reserve officials to grasp the trend of gold prices.

The silver market needs to pay attention to whether the continuous growth of industrial demand can be sustained, and whether there will be new changes in the global supply side of silver. With the gradual recovery of the global economy, the application prospects of silver in the industrial field are broad. However, if the supply side can effectively alleviate the shortage problem, the upward momentum of silver prices may be somewhat restrained. Overall, the intense fluctuations in the gold and silver market in June are just a reflection of the complexity of the global financial market. Investors need to remain cautious in it, seize opportunities, and reasonably allocate assets to cope with the changes in the market.