As expected, the US Federal Open Market Committee raised interest rates at yesterday’s meeting. Gold and silver hardly reacted to the decision but closed below $1,200 and $14.4 per ounce, respectively.

While the US interest-rate cycle and the related strength of the US dollar leave gold and silver in a challenging short-term environment, we continue to believe that a lot of negative news is priced in.

Sentiment in the futures market still is very bearish as speculative short positions in both metals are close to record levels. Usually, sentiment moves in cycles and a normalisation of today’s bearish mood should start lifting prices.

Heading into next year, the strength of the dollar should soften, adding more upside to prices while beyond that, i.e. around the turn of the decade, the expected slowdown of the economy should revive the demand for gold as a safe haven.

Silver lacks gold’s safe-haven characteristics due to its industrial applications and hence, it is unlikely to follow suit. Additional upside to gold could come from a revival of demand in China, where investors usually are price followers.

Against this backdrop, we feel comfortable with our constructive view on gold and silver, reiterating our recommendation to add positions to the portfolio. That said, while we see gold as a longer-term buy-and-hold position that should be increased over time, this is not the case for silver.

Any opinions expressed here are the author’s own.

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