Institutions: Gold prices are under pressure and retreating as the Federal Reserve shows no expectation of an interest rate cut; physical demand for silver is supported, while investment demand continues to decline.
2026-05-05 12:06:29
According to a recent report by precious metals analysis firm Heraeus, the likelihood of a rate cut this year stimulating gold demand is low due to internal disagreements within the Federal Reserve. Silver demand, on the other hand, is supported to some extent by increased sales of electric vehicles in Europe and the construction of charging infrastructure, but investment market interest in silver continues to decline.
Heraeus analysts noted in their latest update that the Fed’s meeting provided some clarity on the interest rate path.
Analysts stated, "While the meeting did not adjust the benchmark interest rate, Powell's views on the current monetary policy environment were reflected in the subsequent press conference. The most important point was that the Fed did not react strongly to the recent CPI increase caused by the closure of the Strait of Hormuz. Powell stated that the Fed fully anticipated that tariffs and the Strait of Hormuz closure would push up prices, but believed that there was no need to address this situation through interest rate hikes. The Fed statement showed that the PCE rose 3.5% year-on-year, but most indicators of long-term inflation expectations remained consistent with our 2% inflation target. Powell also believes that the neutral interest rate—the level that perfectly balances the Fed's dual mandate—is between 3% and 4%, implying that this level is slightly lower than the current interest rate."
Analysts believe the Federal Reserve currently judges that "economic activity is performing well enough that a rate cut is unnecessary, and the pace of price increases is not high enough to warrant a rate hike." However, three Federal Open Market Committee (FOMC) members objected to the wording of the statement, preferring a more hawkish tone, while another member voted for an immediate rate cut.
Analysts added, "Powell did not make any predictions or speculations about the future, and indicated that this might be his last FOMC meeting as chairman. With the criminal investigation against him dropped and Kevin Warsh confirmed by the Senate Banking Committee, the likelihood of Warsh being confirmed as the next Fed chairman before the June meeting has further increased."
On the supply side, Heraeus noted a decline in production at Newmont, the world’s largest gold producer, in the first quarter.
Analysts stated, "Newmont reported first-quarter gold production of approximately 1.3 million ounces, a year-over-year decrease of about 13%, below the 1.5 million ounces projected for the first quarter of 2025. The decline was primarily due to operational disruptions at multiple mines and the divestiture of the Musselwhite and Cripple Creek & Victor mines last year. Despite this, the company's financial performance was strong, with net income rising to $3.3 billion and free cash flow reaching a record $3.1 billion, driven by higher gold prices. Newmont announced that its full-year production guidance remains at approximately 5.3 million ounces, progressing as expected."
Gold ETF holdings have declined from their March highs, but have remained largely stable year-to-date. "US gold ETF holdings have decreased by 2.1% from their February 27 peak to 98.8 million ounces, roughly in line with the beginning-of-year level (98.9 million ounces). So far this year, gold ETF holdings have been closely correlated with gold price movements, experiencing localized highs at the end of January, the end of February, and mid-April, and a low at the end of March, slightly later than the lowest closing price of gold on March 26."
Heraeus analysts pointed out that silver ETF holdings have shown a continuous downward trend throughout the year.
They wrote, "Silver ETF holdings fell 8.2% from their January 1st peak to 793.2 million ounces, down from 863.6 million ounces at the beginning of the year. Silver ETF holdings have been declining throughout the year, with only slight rebounds after periods of rising silver prices. This downward trend has stabilized since silver prices hit their lowest closing price of the year on March 26th."
On the demand side, the development of electric vehicles in Europe provides significant support. Analysts stated, "In the first quarter of 2026, battery electric vehicles accounted for 19.4% (approximately 547,000 units) of new car registrations in the EU, an increase of 4.2 percentage points compared to the first quarter of 2025. Hybrid vehicles and plug-in hybrid vehicles accounted for 38.6% and 9.5% respectively, with hybrid vehicles being the most popular choice. The share of new registrations for internal combustion engine vehicles fell to 30.3%, lower than 38.2% in the same period last year."
Heraeus emphasized that electric vehicles and their charging infrastructure require a significant amount of silver. "For example, electric vehicles use about 75% more silver than internal combustion engine vehicles. Each electric vehicle uses between 1 and 2 ounces of silver. In addition, fast DC charging stations may require up to 50 ounces of silver, depending on the power and the number of charging ports."
Heraeus' analysis indicates that the Federal Reserve's decision to maintain the current interest rate path is unlikely to significantly stimulate gold investment demand in the short term. Instead, fluctuations in gold mine supply and changes in ETF holdings will be key factors influencing gold prices. The silver market, however, shows a clear divergence: industrial demand, particularly in the European electric vehicle and infrastructure sectors, is providing support, but investment demand continues to shrink. Future gold and silver price movements will depend on Federal Reserve policy developments, geopolitical developments, and the actual consumption of silver by the global real economy.
Spot gold daily chart source: EasyForex
At 12:06 Beijing time on May 5, spot gold was trading at $4535.25 per ounce.
The Federal Reserve meeting sent a clear policy signal
Heraeus analysts noted in their latest update that the Fed’s meeting provided some clarity on the interest rate path.
Analysts stated, "While the meeting did not adjust the benchmark interest rate, Powell's views on the current monetary policy environment were reflected in the subsequent press conference. The most important point was that the Fed did not react strongly to the recent CPI increase caused by the closure of the Strait of Hormuz. Powell stated that the Fed fully anticipated that tariffs and the Strait of Hormuz closure would push up prices, but believed that there was no need to address this situation through interest rate hikes. The Fed statement showed that the PCE rose 3.5% year-on-year, but most indicators of long-term inflation expectations remained consistent with our 2% inflation target. Powell also believes that the neutral interest rate—the level that perfectly balances the Fed's dual mandate—is between 3% and 4%, implying that this level is slightly lower than the current interest rate."
Analysts believe the Federal Reserve currently judges that "economic activity is performing well enough that a rate cut is unnecessary, and the pace of price increases is not high enough to warrant a rate hike." However, three Federal Open Market Committee (FOMC) members objected to the wording of the statement, preferring a more hawkish tone, while another member voted for an immediate rate cut.
Analysts added, "Powell did not make any predictions or speculations about the future, and indicated that this might be his last FOMC meeting as chairman. With the criminal investigation against him dropped and Kevin Warsh confirmed by the Senate Banking Committee, the likelihood of Warsh being confirmed as the next Fed chairman before the June meeting has further increased."
Gold supply and ETF holdings
On the supply side, Heraeus noted a decline in production at Newmont, the world’s largest gold producer, in the first quarter.
Analysts stated, "Newmont reported first-quarter gold production of approximately 1.3 million ounces, a year-over-year decrease of about 13%, below the 1.5 million ounces projected for the first quarter of 2025. The decline was primarily due to operational disruptions at multiple mines and the divestiture of the Musselwhite and Cripple Creek & Victor mines last year. Despite this, the company's financial performance was strong, with net income rising to $3.3 billion and free cash flow reaching a record $3.1 billion, driven by higher gold prices. Newmont announced that its full-year production guidance remains at approximately 5.3 million ounces, progressing as expected."
Gold ETF holdings have declined from their March highs, but have remained largely stable year-to-date. "US gold ETF holdings have decreased by 2.1% from their February 27 peak to 98.8 million ounces, roughly in line with the beginning-of-year level (98.9 million ounces). So far this year, gold ETF holdings have been closely correlated with gold price movements, experiencing localized highs at the end of January, the end of February, and mid-April, and a low at the end of March, slightly later than the lowest closing price of gold on March 26."
Demand for silver is clearly differentiated.
Heraeus analysts pointed out that silver ETF holdings have shown a continuous downward trend throughout the year.
They wrote, "Silver ETF holdings fell 8.2% from their January 1st peak to 793.2 million ounces, down from 863.6 million ounces at the beginning of the year. Silver ETF holdings have been declining throughout the year, with only slight rebounds after periods of rising silver prices. This downward trend has stabilized since silver prices hit their lowest closing price of the year on March 26th."
On the demand side, the development of electric vehicles in Europe provides significant support. Analysts stated, "In the first quarter of 2026, battery electric vehicles accounted for 19.4% (approximately 547,000 units) of new car registrations in the EU, an increase of 4.2 percentage points compared to the first quarter of 2025. Hybrid vehicles and plug-in hybrid vehicles accounted for 38.6% and 9.5% respectively, with hybrid vehicles being the most popular choice. The share of new registrations for internal combustion engine vehicles fell to 30.3%, lower than 38.2% in the same period last year."
Heraeus emphasized that electric vehicles and their charging infrastructure require a significant amount of silver. "For example, electric vehicles use about 75% more silver than internal combustion engine vehicles. Each electric vehicle uses between 1 and 2 ounces of silver. In addition, fast DC charging stations may require up to 50 ounces of silver, depending on the power and the number of charging ports."
Overall Outlook
Heraeus' analysis indicates that the Federal Reserve's decision to maintain the current interest rate path is unlikely to significantly stimulate gold investment demand in the short term. Instead, fluctuations in gold mine supply and changes in ETF holdings will be key factors influencing gold prices. The silver market, however, shows a clear divergence: industrial demand, particularly in the European electric vehicle and infrastructure sectors, is providing support, but investment demand continues to shrink. Future gold and silver price movements will depend on Federal Reserve policy developments, geopolitical developments, and the actual consumption of silver by the global real economy.
Spot gold daily chart source: EasyForex
At 12:06 Beijing time on May 5, spot gold was trading at $4535.25 per ounce.
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