Strong Dollar, High-Interest Rates Squeeze Precious Metals

Precious metal ETFs have struggled over the past week amid dips in platinum, silver and gold prices. Silver ETFs iShares Physical Silver ETC and the Wisdom Tree Physical Silver ETC went down by 5.940% and 5.945% respectively while gold prices dropped by 1.22%.

Several months of high-interest rates coupled with a strong dollar have suppressed upward mobility in the precious metals market in recent weeks. Multiple interest rate hikes by the U.S. Federal Reserve have pulled investor interest away from gold for several months as investors chose to spend on assets that pay interest such as real estate, government bonds and mutual funds.

Precious metals such as gold also have an inverse relationship with the greenback, meaning when the dollar surges in value, as it has in recent months, precious metal prices go down. Although gold should have performed much better because of its safe-haven appeal, high interest rates have made interest-paying assets much more attractive.

Declines in the precious metals market were primarily caused by a stronger greenback, increasing risk-free rates, and data from technical analysis that suggests vulnerability near the resistance levels of precious metals such as gold and silver.

Even so, analysts say silver will emerge as the top-performing precious metal thanks to its use in electric vehicles and photovoltaic cells in solar panels. As the United States transitions to electric vehicles and renewable energy sources, demand for silver in the automobile and energy industries will explode.

For example, solar-panel installations have been on the rise in recent years, with the local solar industry installing around 6.1 gigawatts of solar capacity in Q1 2023 and EV adoption rates in the country reaching the critical tipping point for mass adoption of 5% in 2021. In fact, demand for silver is predicted to balloon to such an extent that it will outpace supply for the second consecutive year this year.

Gold miners’ ETFs, on the other hand, are under immense pressure due to declining gold output coupled with increasing costs. Platinum-based ETFs also went down by 6.69% but are expected to recover thanks to demand from the automobile sector. The metal is used as an ingredient in catalytic converters and is predicted to see a year-on-year demand increase of 12% this year.

With some investors turning to platinum as a hedge against palladium, some experts predict platinum has more upward potential, particularly due to its potential use in the green energy transition.

As miners such as Hecla Mining Company (NYSE: HL) are all too aware, commodity markets move in cycles, and the current squeeze is unlikely to dampen their resolve to implement their strategic plans with the aim of remaining profitable over the coming years and decades.

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