UBS: Gold has risen too quickly, a healthy correction is needed, and silver is catching up.

The soaring gold price hitting a historic high has led to a rise in silver prices. What will be the future market trend?

According to the report by UBS Group AG on Wednesday, the strong surge in gold prices reflects bullish market expectations. Some adjustments may be more beneficial to the market. With positive market sentiment and limited positions, gold may continue to rise, and silver is expected to catch up with the upward trend of gold.

As of now, spot gold is at $2155.53 per ounce, rising for seven consecutive trading days with an increase of over $100, breaking the record set in December last year.

Regarding the recent trend of gold, UBS Group AG pointed out in the report that gold has risen too fast and a correction would be healthier:

The rebound in gold prices indicates a bullish market sentiment. Prior to this, positions were relatively low, with fund managers' net long positions only about half of the previous 12-month high. The latest data from the CME showed that after an initial increase in open interest last weekend, the momentum eased by Tuesday, indicating some positions were unwound at the peak.

Some consolidation is beneficial for the market. The unexpected rebound in gold has defied expectations of a delayed rate cut by the Federal Reserve, both in terms of timing and magnitude.

Gold ETFs are still net sellers, with the selling pace slowing down in the past week. At higher price levels, physical gold demand may decline. Spot gold trading volume in China has slowed down, but forward and futures trading volumes have picked up.

It is worth noting that key non-farm payroll data will be released on Friday evening. UBS Group AG expects US non-farm payrolls for February to exceed market expectations. If new job additions are stronger than expected, gold prices may further retrace. Overall, UBS Group AG believes that the positive resistance to rising prices and still limited positions indicate a general upward bias in gold prices.

Recently, silver prices have also risen, but compared to gold, its performance has been relatively lagging. Currently, spot silver is at $24.09 per ounce, breaking the new high since January 3.

The UBS Group AG report points out that if the upcoming US non-farm payroll data is weak and market rate cut expectations increase, silver prices are expected to rise. The growth in silver trading volume in China and strong silver demand in India provide support for the rise in silver prices.

In the past few trading days, benefiting from the trend of gold, silver prices have risen by 8%. However, the momentum of silver lags behind gold: the silver-to-gold ratio continues to trade near highs, indicating that silver is not performing as well as gold. If we see weak economic data from the United States and further easing policies from the Federal Reserve being absorbed, we believe silver has the potential to catch up with the rising trend of gold.

From a fundamental perspective, recent demand indicators are encouraging. The trading volume of silver futures contracts on the Shanghai Gold Exchange (SGE) and silver futures contracts on the Shanghai Futures Exchange have both rebounded. The rising silver premium in China indicates an improvement in demand.

Additionally, Indian silver demand has been strong so far this year, with January imports about 49% higher than the long-term average, although still lower than the robust import levels in 2022.