Gold and silver prices are poised for a period of potential volatility with a consolidative bias in the coming days, according to market experts. This outlook comes as a mix of simmering geopolitical tensions and shifting expectations for US interest rates create a complex environment for precious metals.
Geopolitical Tensions Fuel Safe-Haven Demand
The precious metals market witnessed a sharp reaction this week following a significant geopolitical development. Gold prices surpassed $4,450, recovering from a nearly 4% fall the previous week. This rebound was primarily triggered by the United States' capture of Venezuelan President Nicolas Maduro, an action executed without Congressional approval that sparked global concern.
Former President Donald Trump stated the US would manage Venezuela until a secure transition could be arranged, further escalating tensions. He also warned of additional strikes if Caracas resisted US efforts concerning its oil industry and drug trafficking, hinting at possible actions against Colombia and Mexico. Concurrently, Russia revised its stance in Ukraine peace talks after an alleged drone attack on a residence of President Vladimir Putin, while the US elevated its rhetoric against Iran.
Interest Rate Expectations and Economic Data in Focus
Alongside geopolitical friction, monetary policy expectations continue to underpin the market. Federal Reserve Bank of Minneapolis President Neel Kashkari noted that interest rates might be nearing a neutral level for the US economy, suggesting future actions will be data-dependent. This aligns with market anticipation of lower US interest rates, a key supportive factor for non-yielding assets like gold.
Bullion had previously hit a record high of $4,549.92 on December 26. Many leading banks forecast further gains for the year, especially with expectations of additional Fed rate cuts and potential changes to the US central bank's leadership. Traders are now closely watching a series of upcoming US economic data releases, most notably the December jobs report due on Friday.
Risks from Index Rebalancing and Silver's Unique Drivers
In the near term, analysts warn of potential headwinds from a broad rebalancing of major commodity indexes. The record-breaking rallies in gold and silver could prompt passive tracking funds to sell some contracts to align with new weightings, a process set to begin this Thursday. Furthermore, major indices are scheduled to sell a portion of their gold holdings based on end-2025 price and 2026 weight targets, which may create short-term turbulence.
Silver prices have risen as much as 4% since the start of the week, but face their own set of dynamics. The industrial metal is at risk of highly volatile moves as exchanges might raise margin requirements again if the uptrend continues. The Chicago Derivative Exchange (CDE) already raised margin money for silver twice by 25% last month. On the demand side, China's LONGi Green Energy Technology Co. announced plans to substitute base metals for silver in its solar cells, an industry move to counter the white metal's surging costs.
Weekly Price Outlook
Gold: Cautious upside with a consolidative bias. A move toward new record highs would likely require a further broadening of geopolitical tensions or US data that reinforces expectations of more aggressive Fed easing.
Silver: Expected to remain volatile in the medium term, influenced by both industrial demand factors and financial market mechanics like margin changes.
(Disclaimer: The views and recommendations expressed are those of the individual analysts and do not represent the views of The Times of India.)
