China Boosts Gold Reserves as Fed Policy Shifts and Silver Deficit Looms
The People’s Bank of China has continued its gold-buying spree, marking the 23rd consecutive month of increases. In September, holdings rose to 77.47 million ounces from 76.73 million ounces in August. This trend reflects a broader strategic move by central banks to diversify reserves, with the World Gold Council reporting 39 tonnes of official sector purchases in August, totaling 170 tonnes year-to-date.
Attention is now turning to the minutes from the September Federal Open Market Committee (FOMC) meeting, set for release on Wednesday. Markets are closely watching for insights into policymakers’ evolving views on the economy. Recent data suggests a slowdown in the U.S. labor market and moderating inflation, fueling expectations that the FOMC will hold off on rate hikes in October. However, a December rate increase is priced in at over 85%, with Federal Reserve Bank of Kansas City President Jeffrey Schmid advocating for further rate increases to curb inflation.
Silver, like gold, remains sensitive to Fed policy, but its market dynamics are more nuanced. The Silver Institute anticipates a sixth consecutive annual deficit of 46.3 million ounces by 2026, with total demand forecast to fall 2% to 1.11 billion ounces. While fabrication demand declines, investment demand is expected to rise, particularly in coins and bars, which could offset some losses. Industrial demand is projected to drop 3%, though solar manufacturers are reducing silver use in photovoltaic applications. Positive growth areas for silver include grid expansion, AI data centers, and automotive electronics.
Technically, gold is trading around $4,142, holding above the $4,112 support level but facing resistance at $4,160. A break above this could target $4,190 and $4,214, while support levels include $4,073 and $4,030. The RSI remains bearish below the 50 center line. For silver, currently at $60.84, resistance lies at $61.72, with potential upside to $63.06 and $65.09. Support is at $59.96, with additional levels at $58.94 and $57.64. The RSI suggests slightly bearish momentum, with a break above $63.06 needed to shift the outlook.