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Most-active gold futures dipped below $2,300/oz on Wednesday to the lowest finish in more than seven weeks, weighed by a stronger dollar and higher bond yields, while traders await U.S. inflation data due later this week.
The dollar rose 0.4% to almost a two-month peak against rivals, making gold more expensive for other currency holders, while the U.S. 10-year Treasury yield added eight basis points to 4.32%, ending near a two-week high.
This week’s key data point will be the U.S. Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation gauge which could factor in the central bank’s monetary policy path amid recent signs of resilience in the economy.
“It seems that gold has settled into a typical summertime trading range after a very hectic and impressive spring rally,” Gold Newsletter editor Brian Lundin told Marketwatch, adding that the odds favor a continuation of the range for the next 1-2 months, until Fed rate cuts come into view in the early fall.
On its expiration day, the front-month June Comex gold contract (XAUUSD:CUR) closed -0.7% to $2,299.20/oz, while the most-active August contract ended -0.8% to $2,313.20/oz, the lowest settlement for the most-active contract since May 3.
Front-month Comex silver (XAGUSD:CUR) for June delivery settled +0.2% to $28.909/oz, while most-active September Comex silver (XAGUSD:CUR) finished +0.2% to $29.26/oz.
Silver’s 21% gain this year is beating gold and silver, not to mention the S&P 500 index, but many investors seem to be shunning the metal, as most silver bullion and silver mining ETFs have net outflows Year-To-Date, according to Morningstar data, while U.S. Mint silver bullion coin sales are less than half of 2023’s sales of 3.4M oz through June.
The Silver Institute says industrial demand for the metal in 2023 reached a record, helped by a 64% jump in demand from the solar panel industry, and the group expects usage will rise another 20% this year.
Options to own silver are much more limited than gold; aside from physical bars and coins, only a few ETFs are available – the biggest silver-backed ETF is the $13.2B iShares Silver Trust (SLV).
Also, there are no pure-play silver mining stocks, since most silver is dug up as a byproduct of base metal or gold production.
### Insight into Silver Market Dynamics
With silver outperforming both gold and the S&P 500 index with a 21% gain this year, it is interesting to note the divergence in investor sentiment towards the metal. Despite its strong performance, many investors are choosing to shun silver, as evidenced by net outflows in silver bullion and mining ETFs. This conflicting behavior raises questions about market perceptions and suggests a nuanced understanding of investor behavior is needed.
### Industrial Demand and Growth Potential
The Silver Institute’s report on record industrial demand for silver, driven by a significant increase in usage by the solar panel industry, highlights the metal’s growth potential beyond traditional investment purposes. As industrial applications continue to expand, silver’s utility and demand are likely to further propel its value in the market. This industrial demand angle offers a compelling narrative for those considering investment opportunities in silver beyond the financial markets.
### Limited Investment Options and Market Realities
The constrained options for owning silver compared to gold, including reliance on ETFs like the iShares Silver Trust (SLV) and the absence of pure-play silver mining stocks, underscore the unique dynamics of the silver market. Understanding these limitations, combined with silver’s industrial and investment appeal, can provide valuable insights for investors seeking to navigate and capitalize on the complexities of the silver market.
