Central banks will continue to support gold prices, but the second half of the monsoon could reduce demand for the precious metal in India

Forex Platform- Gold prices will continue to be supported by strong central bank buying even if Chinese buying slows, according to precious metals strategists at Heraeus. However, Indian demand for silver and gold is likely to decline later this year.

In the latest precious metals report, analysts wrote that strong central bank demand for gold is expected to continue.

Analysts said, "A recent survey by the World Gold Council showed that most of the 70 central banks surveyed expressed a preference for increasing their gold purchases and reducing their dollar holdings over the next five years, although only 29% of central banks expect their institutions to increase their gold reserves over the next 12 months. Interest rate levels, inflation concerns and geopolitical instability were cited as the top three drivers behind foreign exchange reserve management decisions. The data showed that net central bank purchases reached 110.5 tonnes in the year to April, largely in line with the past two years."

Heraeus also noted that the People's Bank of China (PBoC) suspended its gold purchases in May after 18 consecutive months of net gold inflows. "However, the absence of reports of the PBoC increasing its gold holdings does not necessarily mean that official increases in other institutions, such as sovereign wealth funds, have stopped," they said. For example, China's gold holdings reportedly increased by 604 tonnes in June 2015 as a result of the PBoC shifting long-accumulated gold into foreign exchange reserves rather than a single large-scale market purchase. As a result, the PBoC may still be accumulating gold behind the scenes.

Global central banks are expected to buy 273.7 tonnes of gold this year even taking into account the slowdown in Chinese central bank purchases, analysts wrote, and could provide demand support over the next five years if central bank buying continues to be strong, as the survey suggests.

Spot gold 1 hour chart

On Friday, spot gold fell sharply from a high of $2367.70 to below $2,320 an ounce. Spot gold started the week trading in a narrow range of about $15 an ounce. At 01:12 Beijing time, spot gold was trading at $2318.11 an ounce, down 0.69% on the day.

When it comes to silver, analysts have warned that a delay in the Indian monsoon season could reduce demand for the precious metal later this year.

"According to the Indian Meteorological Department, rainfall in India has decreased by 20 per cent since the beginning of June compared to previous years, and the seasonal arrival of the monsoon is about two weeks later than originally planned," Heraeus noted. "The monsoon season is important for India's agricultural sector, and the delay in rainfall could have a negative impact on crop yields for the autumn harvest, with knock-on effects on rural incomes. Rural communities are important buyers of precious metals."

According to the Silver Institute, India's silver demand for jewellery and silverware in 2023 is 3,771 tonnes, accounting for 46.9% of global demand in these industries.

"If rural disposable income is negatively affected, silverware and silver jewellery demand could take a hit, as could demand for gold," the analysts wrote. "If Indian silverware manufacturing falls by 10 per cent this year, demand risks falling below 1,000 tonnes for the first time in three years. Year-to-date silver imports in India have been relatively strong, reaching 4,335 tonnes, up 77.6 per cent year-on-year, which could mean year-on-year imports could be on par with 2023 even if the second half of 24 slows."

Spot silver 1 hour chart

After the price of silver fell on Friday, silver was under pressure again on Tuesday. At 01:12 Beijing time, silver was trading at $28.837 an ounce, down 2.40%. So much for the latest news about silver and gold. If you want to know more, you can continue to pay attention.