Gold prices remain strong while silver underperforms

Gold prices retreated from a fresh record high hit on Tuesday, but remained 1.5% higher than the previous trading day. 

President Donald Trump's threat to dismiss US Federal Reserve Chair Jerome Powell triggered a flight to safe-haven assets, driving gold prices to unprecedented highs on Tuesday. 

“Bullish traders pause for a breather amid extremely overbought conditions on short-term charts, though the fundamental backdrop supports prospects for an extension of a well-established uptrend,” Haresh Menghani, editor at FXstreet, said in a report. 

At the time of writing, the most-active gold contract on COMEX was at $3,477.10 per ounce, up 1.5% from the previous close. 

Prices had hit a lifetime high of $3,509.06 per ounce earlier on Tuesday. 

Experts believe even though gold is in overbought territory at present, the decline in prices could be cushioned by fundamental factors. 

The $3,425-3,423 horizontal zone and the $3,400 mark will likely provide decent support for any meaningful corrective slide before it continues, according to Menghani.

Trump and US Fed

Trump's plans to overhaul the Federal Reserve have sparked concerns surrounding US monetary policy, causing the latest rally in gold. 

Trump has repeatedly called for the Fed to reduce interest rates, and on Monday, he reiterated this call, saying the US economy could slow down if the Fed does not cut interest rates immediately. 

Additionally, White House economic advisor Kevin Hassett said on Friday that Trump and his team were continuing to study whether they could fire Fed Chair Jerome Powell.

Powell had indicated last week that the central bank was not considering cutting interest rates soon.

He cited potential inflationary pressures and economic uncertainties resulting from the recently imposed tariffs.

Nevertheless, the market is sticking to its view that the Fed will cut interest rates as early as the summer.

Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG said:

Traders are pricing in the possibility of at least three Federal Reserve interest rate cuts in 2025, including a 25 basis point reduction in June, according to the CME Group's FedWatch Tool.

Gold ETFs

Exchange-traded fund (ETF) holdings in gold have surged to their highest point since September 2023, according to ING Group’s analysts. 

This notable increase suggests a growing investor preference for gold-backed ETFs as a safe haven asset amid current market uncertainties. 

The heightened allocation towards gold ETFs could be attributed to various factors, including economic instability, geopolitical tensions, or inflationary pressures. 

“In US dollar terms, though, this position is at a record high, given the strength in prices.” ING analysts said. 

The best-performing commodity so far this year is spot gold, which has risen over 30%.

Meanwhile, COMEX gold inventories continue to trend lower, falling by almost 2 million ounces since early April to a little under 43.1 million ounces, according to ING. 

“This decline comes as the arb into New York turns negative at times following news that gold is exempt from tariffs."

Silver fails to keep up

During the second week of April, silver prices rose by over 15% from their lowest point this year, but they haven't matched the recent surge in gold prices.

As a result, the gold-silver ratio is climbing again, reaching 102.

Barbara Lambrecht, commodity analyst at Commerzbank, said in a report:

The Silver Institute's World Silver Survey, released last week, anticipates a slight decrease in industrial demand for silver this year, following a 4% growth in 2024.

Global silver demand is predicted to experience a less drastic decline this year compared to last.

The silver market is expected to remain in a supply deficit for the fifth consecutive year, despite an anticipated increase in supply.

The market deficit is projected to decrease for the third consecutive year to just below 118 million ounces, according to the World Silver Survey. 

The most active silver contract on COMEX was at $32.383 per ounce, down 0.4% from the previous close.