Bond markets are already alluding to this possibility. Benchmark U.S. Treasury yields have moved to their highest levels for 2023. This is due to escalating energy costs which is helping to fan inflation concerns. This also provides a good counterbalance to the dollar weakening and the support for gold.
Geopolitics is helping to maintain demand as well. Iran said that it attacked 10 ships in the Strait of Hormuz, following the U.S. sinking five Iranian oil tankers, which has been the largest attack on shipping during the 6-month conflict. This is helping to create a supply disruption of Middle Eastern oil which is helping to create a safe-haven demand while increasing the concerns of inflation.
Gold also has demand from the U.S. fiscal sustainability concerns after the federal debt eclipsed forty trillion dollars for the first time last month. ANZ said that fiscal pressures are creating doubt in the U.S. government’s ability to service their debts and maintain their currency.
For silver, the backdrop is a strong monetary environment coupled with a tight physical market. The Silver Institute forecasts a sixth consecutive annual deficit in 2026. Stocks have drawn down by 762 million ounces since 2021. Despite an anticipated increase in investment demand for silver in the bar and coin form of 18%, a slowdown in industrial demand will likely slow the growth.
Fundamental bias: We are moderately bullish on gold and silver, and near term U.S. PPI and CPI will be most important.
