Over the past few trading sessions, gold and silver have been trading at relatively low levels. In international markets, spot gold is currently below the $4,900/oz mark, while spot silver is trading below the $75/oz level.
On MCX too, both assets were trading in the red yesterday, with gold futures at Rs 1,51,748 per 10 grams, down 2% from the previous close. Meanwhile, silver futures are down 4% at Rs 2,30,245 per kg.
This marks a very steep decline for gold and silver, which had surged to record high levels in late January. Experts had pointed out that the rally in these precious metals was mostly caused by a rise in speculative investment demand, particularly from China.
Now that mainland markets in China are closed for the Lunar New Year holiday, commodity strategist Ole Sloth Hansen noted that prices of gold and silver are under pressure, with subdued trading activity. In his article, he noted that the recent rally relied heavily on “Asian participation.”
“With the marginal buyer temporarily absent, metals are now struggling to regain momentum,” Hansen said in his piece. The expert noted that despite geopolitical tensions in the Middle East, prices for gold and silver remain muted, underscoring the heavy reliance on Asian participation.
Caution around the dollar may weigh on precious metals
Hansen explained that over the past few months, persistent dollar weakness also supported prices of precious metals. Emphasising a Bank of America survey, he added that a prolonged bearish stance on the dollar has raised the risk of a counter-trend rebound.
In simple terms, a counter-trend rebound means that a currency (like the dollar) may temporarily rise against its main downtrend before resuming its original fall.
According to Hansen, the US dollar isn’t seeing much further decline against most major currencies. He noted that the greenback has only really weakened significantly against the Japanese yen.
“Notably, outside US dollar-yen, the dollar has struggled to extend its decline. If EUR-USD were to break below 1.18 or GBP-USD below 1.35, short positioning could start to unwind, adding some additional headwinds,” he added.
Hansen stays bullish outlook for gold
In his comments, Hansen said that the underlying fundamentals for gold remain supportive. He added that persistent gold purchases by central banks for reserve diversification, along with expanding fiscal deficits, elevated national debt, and concerns over currency debasement, provide strong structural support for the yellow metal.
Additionally, ongoing geopolitical fragmentation and portfolio diversification away from dollar-centric assets sustain the long-term demand for the asset, even though it may not immediately reflect in its price, Hansen said in his piece.
“Together, these forces suggest that, although corrections are inevitable after parabolic advances, the broader bull trend remains intact,” Hansen said.
“Gold has so far found support near $4,860/oz, with the next technical level emerging around $4,670/oz. The metal’s resilience despite thin liquidity suggests underlying demand remains intact, but momentum has clearly faded following the extreme volatility seen in recent weeks,” Hansen added.
Hansen says silver may weaken towards the $70/oz mark
The commodity strategist, in a social media post on X, said that silver may face additional short-term weakness towards the $70/oz mark. In his piece, Hansen explained that long-term fundamentals remain supportive, given the white metal’s high investment demand and its usage in solar photovoltaics.
He added that the mismatch between demand and supply continues to attract investors looking for more gains. However, Hansen pointed out that this narrative may change, as high silver prices may prompt industries and jewellery buyers to cut down on consumption.
Hansen also added that rising scrap supply and increasing recycling volumes for silver may reduce market tightness. However, the price-cooling effect would only show up fully after several months, he said.
The commodity strategist added that the latest lunge in silver prices has weakened conviction among buyers, noting that silver is still coming out of the volatility shock it faced recently.
Giving his final thoughts, Hansen said, “With Chinese activity temporarily paused and industrial demand signals mixed, the metal may require a period of consolidation before a more durable recovery can take hold, even if the broader supply-demand balance remains tight.”
What lies ahead for gold and silver?
Hansen noted that the re-opening of Chinese markets would be a key driver in determining how much gains gold and silver can extend. He added that in the near term, metals may remain sensitive to changes in currencies and overall market conditions.
Over the medium term, the structural outlook for gold remains bullish, backed by economic trends and geopolitical risks. For silver, Hansen said that the medium-term outlook looks constructive but tactically less convincing owing to the recent price swings in the white metal.
He added that the re-opening of Chinese markets would be critical in determining whether the consolidation phase in these precious metals turns into fresh upside or leads to a deeper pullback to attract fresh buyers.