Investors cash in: Gold and silver see year-end profit-taking

Gold and silver investors are increasingly turning defensive ahead of year-end as they seek to protect and lock in gains following a very strong year, analysts said.

However, several factors are helping keep the long term bullish outlook for gold, with the metal predicted to hit $3,000 next year.

This year has seen gold’s record-breaking rally deliver the best annual return since 2010, while silver has managed to keep up with gold, reaching a 12-year high during the October run-up to the US presidential elections.

Both metals currently trade up more than 27 per cent on the year — a very impressive performance considering the headwind from a stronger dollar, which has climbed more than six per cent against a basket of major currencies. It is currently on track to record its best year in a decade. In addition, US bond yields have been rising despite the start of a rate-hiking cycle amid worries about fiscal instability as governments — particularly in the US — continue to spend money they do not have, leading to an increased debt burden.

“We maintain a bullish outlook for gold and, not least, silver in 2025 amid an uncertain world driving demand from central banks and investors worried about fiscal instability, geo-political concerns, a US stock market increasingly out of balance, and sticky inflation. In the short term, relative US yield strength and investor demand for US equities may continue to limit gold and silver’s upside potential as it drives the dollar higher,” Ole Hansen, Head of Commodities Strategy, Saxo Bank, said in a note.

While the US rate-cutting cycle began in 2024, the prospect of aggressive cuts began to deflate almost as soon as the first cut was delivered in September. From an expected December 2025 low of around 2.75 per cent, the Fed Funds futures market is now pricing in fewer than three additional cuts, including the one the FOMC is expected to deliver this Thursday, to around 3.9 per cent by this time next year.

So why have precious metals, despite these apparent headwinds, been doing so well in a year that equity markets have also performed very well, albeit concentrated in a few (US) mega-cap stocks?

“One year ago, when we wrote our Year of the Metals 2024 outlook, we foresaw gold and silver prices trading higher on a combination of US recession risks and falling inflation, leaving the door open to rate cuts. Additionally, these metals were already being supported by safe-haven bids following the October 2023 Hamas attack on Israel and Houthis attacking ships in the Bab el-Mandeb Strait, thereby reducing shipping traffic through the Red Sea. On top of these factors, central bank buying was expected to continue due to a diversification focus away from the $and US Treasury bonds,” Hansen said.

While a US recession failed to materialise and US rate-cut expectations faded, most of the developments that have supported these substantial gains are unlikely to disappear anytime soon and, therefore, will continue to support prices of both metals into 2025, Hansen said.

Some factors that will affect gold prices include:

● Central banks are buying to diversify holdings away from the US dollar and government bonds.

Silver’s strong run to a 12-year high in October proved unsustainable and eventually forced a strong reversal, as fading support from gold, copper, and the dollar left many recently established longs above $32.30 nursing losses. “Support has now twice been found around $29.70, the 0.618 retracement of the August-to-October rally, with additional support below being the trendline from the February low. Around $29.70, the 0.618 retracement of the August-to-October rally, with additional backing below being the trendline from the February low,” Hansen said.