StoneX forecasts gold will finish the year near $4,000 per ounce and silver will trade between $55 and $60 per ounce, according to the firm's Q3 Commodities Outlook. Gold dipped below $4,000 in late June as investors stepped back from fresh investment, with the S&P falling almost 5% in one week in early June. Rhona O'Connell, Head of Market Analysis for EMEA & Asia at StoneX, attributes the weakness to uncertainty over the Iran conflict and equity market volatility, with gold's historic inflation hedging role taking a back seat to risk mitigation.
Gold Price Drivers and Market Dynamics
"We concluded our previous outlook saying that we expected gold to be below USD 4,000 by year-end," wrote O'Connell in the Q3 Outlook. "Well, that came more quickly than we were expecting and we dipped below USD 4,000 in late June, as the market has largely stood back from any fresh investment."
O'Connell stated much of gold's recent price weakness is due to continued uncertainty over the outlook surrounding the war with Iran. "This has combined latterly with declining equities with the S&P falling almost 5% in one week in early June (gold is a key mitigator of risk and when there is marked weakness in the equities, gold is frequently sold in order to raise cash against potential margin calls)," she noted.
StoneX believes the conflict has served to shake out the speculative bid from the bullion market. "Most of the weak handed and or speculative holders have almost certainly been washed out over the past six months and this gives gold some upside headroom," O'Connell said.
Federal Reserve Policy Under Kevin Warsh
Addressing Kevin Warsh's ascension to the Fed chairmanship, O'Connell said the new-look Fed appears ready to hold the line on inflation. "For now it certainly looks as if Warsh will continue to be his own man (but do bear in mind also that there is a committee of 12 here; this is not a kingdom)," she wrote. "Mr. Warsh has taken over with a resilient United States economy and a comparatively stable labour force, and although he has not laid out any specific target, part of his philosophy is to reduce Fed statements and he certainly doesn't like the dot plot very much so that may well bite the dust soon."
StoneX noted the swaps markets are pricing in a 30% chance of a 25-point hike in Q4, with the latest core PCE numbers coming in at 3.5%. "It is arguable that the 2% target may yet become a thing of the past," O'Connell said. "For now, gold is fighting shy of rising rates."
Central Bank Gold Demand Outlook
O'Connell cited the recent World Gold Council central bank survey, which returned a record 76 responses. "Some 89% expect global central bank gold reserves to increase over the next 12 months with 45% expecting their own reserves to rise and only 1% expecting a decrease in their own holdings," she noted. "Looking further out 78% expected gold to comprise a higher percentage of total reserves in five years' time, with 5% expecting significantly higher."
"While the official sector cumulative purchases of almost 4,000t in the past four years are a key element of physical demand in the market, we believe what is more significant is knowing what drives those intentions," she added. "If almost the whole official sector is looking at interest rate levels now, with geopolitics and inflation not far behind, then that ties in perfectly with what we also believe to be the key drivers."
China's Gold Holdings Analysis
O'Connell referred to StoneX's recent research on China's gold market, including the last 11 years of mine production, recycling, gold consumption, official PBoC gold purchases, and net imports.
"It is a matter of public record that the PBoC has not necessarily always declared its changes in gold holdings at the time that they happen," she noted. "When we take the cumulative totals of those different components of China's local supply demand balance there appears to be a shortfall of something like 4,000t which could suggest that the Government may have been taking metal in but not necessarily directly into the PBOC's coffers."
Silver Market Forecast and Industrial Demand
O'Connell noted the yellow and gray metals have moved in virtual lockstep of late. "Only 28% of silver mine supply is price elastic with the rest of the material mined as a function of the business models for copper, lead, zinc and gold," she said. "We expect silver to continue to take its short-term guidance from gold, which means oscillation around the USD 55-60 mark for the foreseeable future but, as usual, likely higher volatility than that displayed by the gold price."
O'Connell pointed to developments StoneX believes will be keys to silver demand: "the advent of AI which requires much higher precious metals loadings in its chips than domestic electronics; the electrification of the vehicle fleet, although there is increasing flex in terms of deadlines and some companies have been shelving EV programmes and taking financial hits accordingly; the outlook for the Solar Cell Industry which is currently oversupplied but this will work its way through."
"These elements mean that in the longer-term silver industrial demand will strengthen while there is not much upside in mine supply," she wrote.
Bullish and Bearish Factors
StoneX identified potential bullish factors for gold and silver: "Possible reignition of tensions in/about the Middle East; Ukraine tensions also still in play; Supreme Court finds in President's favour in Cook case; Sustained official sector interest."
The possible bearish catalysts include: "Ceasefire takes on some permanencе; Risk of further equity weakness; Central Bank tightening; hawkish Fed after the change of Chair."
FAQ
What is StoneX's forecast for gold prices by year-end?
StoneX forecasts gold will finish the year near $4,000 per ounce, with the firm noting gold dipped below $4,000 in late June as investors stepped back from fresh investment amid uncertainty over the Iran conflict.
What price range does StoneX expect for silver?
StoneX expects silver to trade between $55 and $60 per ounce, taking its short-term guidance from gold with likely higher volatility than the gold price.
What percentage of central banks expect to increase gold reserves?
According to the World Gold Council central bank survey with 76 responses, 89% expect global central bank gold reserves to increase over the next 12 months, with 45% expecting their own reserves to rise and only 1% expecting a decrease.
