Gold and silver prices are facing renewed pressure due to elevated inflation concerns, but gold exchange-traded fund (ETF) holdings have bucked the trend to hit annual highs. According to Heraeus analysts, gold prices held critical support levels last week despite a challenging macro backdrop.

In their latest update, the analysts noted that gold prices briefly fell below $4,100/oz following the September US CPI release, as the initially hawkish market reaction pushed Treasury yields and the dollar higher. However, the reaction has since partly reversed, with the implied probability of a 25 bp increase at the 28 October meeting falling and gold recovering the support at $4,100/oz as yields and the dollar have eased.

Gold ETF holdings have also climbed to their highest levels of the year to date, reaching a year-to-date peak of 101.3 moz on 8 October, up 5.3% from the year-to-date low of 96.2 moz on 20 July and around 2% higher than at the start of the year.

Despite the significant pressures on the gold price, which has struggled at around $4,100-4,200/oz, well below its January peak, Heraeus analysts observed that ETF holdings have remained just above 101 moz. The two have since diverged, with ETF holdings often lagging turning points in the price.

The demand for gold has broadened geographically, with Asian-listed funds accounting for almost half of the increase in global holdings over the 12 months to September, compared to around 30% from US-listed funds and 20% from Europe. The central bank of Kazakhstan is also reducing its gold holdings, with plans to lower gold’s share of its international reserves from around 78% to 75% by year-end.

The National Bank of Kazakhstan plans to sell around 15 tonnes of gold exposure as part of a portfolio rebalancing exercise, primarily due to elevated US Treasury yields and a desire to reduce concentration risk in its reserves. This move is not evidence of a broader reversal in central-bank gold demand.

Turning to silver, Heraeus analysts pointed out that the gray metal was also under pressure following last week’s hotter-than-expected inflation reports. The silver price fell through support around $60/oz and briefly approached the July lows around $55/oz.

The reaction has subsequently eased, with the implied probability of a 25 bp increase at the 28 October meeting falling to below 30%, while the 10-year Treasury yield and dollar have both moved lower. Silver consequently recovered above $57/oz, although the break below $60/oz leaves the technical picture weaker.

India’s import tax regime for precious metals continues to evolve, impacting banks and wholesale demand. The Indian government has confirmed that silver, gold, and platinum imports by banks and nominated agencies are subject to 3% Integrated Goods and Services Tax. This confirmation removes uncertainty rather than adding a new obstacle to Indian silver imports.

Silver prices were also giving back some of their early gains on Monday morning, but they remained in positive territory on the session. Spot silver last traded at $57.318 per ounce for a gain of 0.61% on the daily chart.

Overall, gold and silver prices face significant headwinds due to inflation concerns, but ETF holdings have bucked the trend. The evolution of India’s import tax regime also continues to impact precious metals demand.

As the market looks ahead to the 28 October meeting, investors will be watching for any signs of a further Fed rate hike and its implications for gold prices. In the meantime, spot gold continued to trade near session lows, while silver struggled at around $57/oz.

The impact of inflation concerns on precious metals prices is likely to be felt in the coming weeks. As the market navigates this challenging macro backdrop, investors will need to stay vigilant and adjust their strategies accordingly.