Gold hits record high but silver poised to outperform amid institutional interest

Gold and silver prices have risen sharply on the first day of September as rate cut hopes fuelled investors’ sentiment on Monday. 

The December gold contract on COMEX hit a record high of $3,556.87 an ounce. The December silver contract on COMEX hit a more than 14-year high of $41.638 an ounce. 

Traders anticipate an interest rate cut by the US Federal Reserve (Fed) this month, despite persistent signs of inflation.

“The outlook drags the US Dollar (USD) back closer to the August monthly swing high and acts as a tailwind for the non-yielding yellow metal,” Haresh Menghani, editor at FXStreet, said in a report. 

Economic data

In July, the annual Personal Consumption Expenditures (PCE) Price Index, as reported by the US Bureau of Economic Analysis on Friday, remained unchanged at 2.6%.

Additionally, the core PCE Price Index, excluding the volatile food and energy sectors, saw a modest increase to 2.9% in the reported month, aligning with analysts' expectations and up from 2.8% in June.

According to the CME FedWatch Tool, traders are now predicting an 87% probability that the US Federal Reserve will reduce borrowing costs by 25 basis points at the conclusion of their two-day meeting on September 17. 

The data reinforced expectations that the Fed will implement at least two interest rate cuts by the end of the year.

Trump and Fed

Menghani said:

Concerns about the Fed's independence have arisen after US President Donald Trump dismissed Fed Governor Lisa Cook, citing alleged mortgage fraud. Cook has filed a lawsuit and refused to resign from her position.

Should Cook depart, Trump would gain another appointment to the Fed's seven-member board, thereby securing a majority for the first time in decades.

The uncertainty surrounding the future of the US central bank also increased safe-haven demand for bullion. 

Thin trading expected

Meanwhile, US markets will be closed on Monday due to the observance of Labor Day.

Ahead of key US macro releases this week, starting with the month and culminating in Friday's closely-watched US Nonfarm Payrolls (NFP) report, traders may avoid making aggressive directional bets.

Last week, Russia conducted significant attacks on Ukrainian cities, deploying 598 drones and decoys, in addition to 31 missiles. 

In response, Ukrainian President Volodymyr Zelenskyy pledged retaliation with strikes targeting deep within Russia.

From the air and ground, Israeli forces attacked the suburbs of Gaza City. Israel's Defence Minister, Israel Katz, announced the death of Abu Ubaida, spokesperson for Hamas' armed wing.

“This keeps geopolitical risks in play, which turns out to be another factor benefiting the safe-haven Gold and contributing to the momentum,” Menghani added. 

Silver to outshine gold

Last week, a significant shift in gold demand followed Harvard's endowment fund establishing a substantial position in SPDR Gold Shares, the world's largest gold-backed ETF, according to a Kitco.com report. 

In addition to other significant precious metals acquisitions in the second quarter, the Saudi Central Bank's 13F filing reveals substantial investments. 

The bank invested $30.5 million in iShares Silver Trust and nearly $10 million in the Global X Silver Miners ETF, according to the report.

“There is no question that this is bullish for silver, but important context is needed,” Neils Christensen, editor at Kitco.com said in the report. 

Some analysts contend that Saudi Arabia's relatively small investment in silver, especially when compared to its tech sector holdings, highlights the metal's investment potential, suggesting it offers more than just industrial growth opportunities.

Silver continues to attract analysts due to its value proposition compared to gold. 

The gold/silver ratio, despite a significant drop from its April peak of over 104, is still high at more than 86. Historically, this ratio has typically fluctuated between 50 and 60.

“The big disadvantage for silver has been its lack of institutional interest,” Christensen said. 

Retail investors have traditionally driven silver's investment appeal, as they are often unable to afford the $3,500 cost of a one-ounce gold coin.