Gold could benefit from prolonged USD weakness, silver is drawing interest from central banks

NEW YORK (September 8) The U.S. dollar is likely on a prolonged path of depreciation, and this will only boost gold prices further, while silver is now drawing attention from central banks, according to precious metals analysts at Heraeus.

In their latest precious metals update, the analysts wrote that gold prices could get a tailwind from U.S. dollar weakness.

“Usually, the gold price rises when the dollar gets weaker and falls when the dollar gets stronger,” they noted. “The unusual thing about the rally since 2016 is that the gold price has risen while the US dollar has strengthened.”

The analysts believe the dollar may be entering a prolonged period of depreciation. “In trade-weighted terms the US dollar is still as strong as it was in the early 2000s, although it has come off its recent peak level,” they wrote. “Global trade with the US has been significantly disrupted by President Trump’s reciprocal tariffs. Even if the Supreme Court rules that he did not have the authority to implement them, the issues of tariffs and US trade deficits are unlikely to go away and the steel, aluminium and auto tariffs will remain because a different power was used to implement those.”

“Many countries’ central banks have been shifting their reserves to gold, often in an effort to reduce exposure to the US dollar,” they added. “With the US taking a more adversarial approach to trade, that trend may well continue.”

Heraeus pointed out that investors have also jumped on board. “Global gold-backed ETF holdings have gone up by 397 tonnes (+12.3%) in the first half of the year and bar and coin demand was 6.4% higher year-on-year at 631 tonnes,” the analysts said. “Gold looks more attractive than the dollar as insurance against US government and central bank mistakes, with President Trump and the US administration pressuring Jay Powell to cut interest rates. Government interference in central bank business adds risks of monetary policy errors compounding fiscal policy mistakes.”

The analysts also said the market is fully priced in for a Fed rate cut following Friday’s weak payrolls report. ”The only question is whether it is a 25 bp or 50 bp cut, with the chance of a 50 bp rate cut being put at 14%,” they said. “Now that the price has broken out, further gains are likely and nearby support is at $3,450/oz to $3,500/oz.”

Spot gold is continuing to set new highs on Monday after breaking above $3,500, then $3,600 per ounce during last week’s rally.

Spot gold last traded at $3,634.35per ounce for a gain of 1.34% on the session.

Turning to silver, Heraeus said central banks’ interest in the gray metal is growing.

“Unlike gold, silver has not been a staple in central bank reserves, but recent activity indicates that some central banks may be exploring it as a means of diversifying reserves,” the analysts wrote. “Earlier this year, Russia announced plans to buy $535.5 million of silver over the next three years.”

Silver prices are pushing up against near-term resistance at $41,400 on Monday morning after challenging that level on multiple occasions last week.  

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