Commodities Watch: Where are gold and silver prices headed?

What’s in it for gold?

A decline in US Treasury yields has led the US dollar to give back some of its earlier gains, supporting a continued march higher in gold prices. Gold may also be sensitive to tariff-related headlines, with renewed US tariff threats on autos, pharmaceuticals, and semiconductor chips offering additional support. With tariff risks postponed rather than eliminated, we may expect renewed market volatility into Q2, which may reinforce gold’s appeal as a hedge.

Several structural tailwinds persist as well, with room for emerging economies to diversify their reserves further away from the US dollar, along with concerns over US fiscal sustainability. A divergence between SPDR Gold Trust exchange traded fund (ETF) holdings and gold prices may also suggest room for catch-up buying from ETF investors.

While there is speculation that potential Ukraine-Russia peace talks could lead to some unwinding in gold, any weakness in gold may be temporary. We will argue that much of the initial risk premium has likely faded after years of conflict—similar to how the Israel-Hamas ceasefire had little impact on gold prices.

Is the key psychological US$3,000 level for gold in sight?

Despite near-term overbought technical conditions, recent pullbacks in gold have been limited, with the formation of higher lows on the four-hour chart indicating that buyers are eyeing a breakout above the US$2,945 horizontal resistance level. A move beyond this level could pave the way toward the key psychological threshold of US$3,000, which aligns with a broader upper channel trendline.

The prevailing uptrend suggests that buying on weakness may remain the favoured strategy. An indicator could be a move in its four-hour relative strength index (RSI) back towards its midline, which has consistently aligned with gold’s price lows since the start of the year.

Where are silver prices headed?

Silver prices are typically correlated with gold, though they are considered less of a hedge due to their ties to industrial demand. The broader trend suggests an upward market, with prices consistently forming higher highs and higher lows. As long as the daily RSI remains above the midline, the upward bias could persist. Prices are currently testing the US$32.55 level, and a likely break above this resistance may set sights on the October 2024 high of US$34.87.