Silver Rebounds on Strong Chinese Demand, Gold Nears $2,500 Amid Equity Sell-Off

Gold (XAU/USD) and silver (XAG/USD) prices remain subdued as economic data and a stronger U.S. dollar exert downward pressure. Silver is trading at $28.24, after hitting a low of $27.88 earlier in the day. Gold, similarly constrained, hovers near $2,500, dipping as low as $2,472. 

Both precious metals are struggling to gain traction despite global uncertainties, largely due to a resilient dollar and mixed 

Equity Sell-Off Adds Pressure on Metals

Gold’s decline is closely tied to a sharp equity sell-off, particularly in tech stocks like Nvidia. Investors facing steep losses have liquidated profitable gold positions to cover margin calls. The broader sell-off, driven by slowing global growth concerns, has further pressured gold as riskier assets take a hit.

The FTSE 100 dropped 0.55% midday, with Germany’s DAX falling 1.41% and France’s CAC 40 down nearly 1%. In the U.S., the S&P 500 dropped over 2%, and the Nasdaq plummeted more than 3%, led by Nvidia’s 9.5% drop, wiping $279 billion off its valuation. 

Investors are watching the Federal Reserve's next move on interest rates amid these market jitters.

US Dollar Strengthens Amid Mixed Economic Data; Gold & Silver Slip

A strengthening U.S. dollar has capped gains for gold and silver. The ISM Manufacturing PMI slightly improved to 47.2 but remains below expectations, signalling continued contraction. 

U.S. Factory Orders surged 5%, reinforcing dollar strength, while the Trade Balance held steady at -$78.8B. The U.S. Dollar Index (DXY) is firm around 101.60, limiting the upside potential for precious metals.

Geopolitical Tensions and Rising Chinese Demand for Silver

Geopolitical tensions, including Russia’s missile attacks on Ukraine and conflicts in Gaza, have yet to provide a meaningful boost to gold prices. However, silver is benefiting from strong demand in China. Silver prices in China are approximately 10% higher than in the West, driven by the country’s booming tech and solar industries.

In June and July, Chinese silver imports exceeded 400 tons, compared to last year's monthly average of around 200 tons.

This surge in demand could create a global supply deficit, and some analysts warn of a possible "silver squeeze" if the trend continues. As China’s industrial appetite for silver grows, production costs in Western economies could rise, further supporting silver prices in the long run.

Outlook: Key Events to Watch

The upcoming U.S. labour market data could have a significant impact on both gold and silver prices:

• ADP Non-Farm Employment Change (Sep 5): A weaker-than-expected figure (forecast at 143K) could heighten the likelihood of a Fed rate cut, boosting demand for precious metals.
• Unemployment Claims (Sep 5): Higher-than-expected claims (forecast at 231K) may raise concerns about U.S. economic health, encouraging investors to seek safe-haven assets like gold and silver.
• Nonfarm Payrolls (Sep 6): With a forecast of 164K, weaker job growth could boost expectations for an aggressive Fed rate cut, lifting gold and silver.
• Average Hourly Earnings (Sep 6): Forecast at 0.3%, slower wage growth would reduce inflationary pressure, potentially leading to Fed easing, further bolstering precious metals.

Despite growing expectations of Fed rate cuts, gold remains unable to break above the $2,500 mark. Silver, however, could find support from rising Chinese demand, although short-term movements will likely depend on U.S. economic data and the dollar's strength.