Why Gold and Silver Prices Could Retreat Next Week
Every year in January, the BCOM (Bloomberg Commodity Index) conducts commodity rebalancing to ensure that no single commodity within the index accounts for more than 15% of the total value of the index. This rebalancing could result in the prices of gold and silver declining as BCOM sells part of their silver and gold holdings in order to lower their share of the index.
This rebalancing exercise is scheduled to take place between Jan. 9-15. Given that the prices of these commodities have surged so much over the past 12 months, their percentage share of the index has risen to exceed the limits set by BCOM. Consequently, some of the holdings will have to be sold, and this could exert downward pressure on the prices of these precious metals on the market.
The reason behind the cap on each commodity’s share within the index is to ensure that the index remains sufficiently diversified and protected from excessive exposure to just a few commodities.
Michael Hsueh, an analyst at Deutsche Bank, revealed in a research note that gold currently takes up 20.4% of the BCOM and during the five-day rebalancing exercise, this proportion could be reduced to approximately 14.9%. The analyst estimates that the index is likely to divest about 2.4 million ounces of gold, which could exert downward pressure on the metal’s price.
Hsueh points out that silver could also be adversely affected during this rebalancing period. Given the immense interest that silver and gold have attracted over the past year, these two commodities are likely to be most affected during index rebalancing.
However, the Deutsche Bank analyst cautions that it isn’t a given that the market price of these commodities will slide as the index sheds some weight to bring their share back within the acceptable range. He says prices can move in either direction during the rebalancing window even if during the past nearly half a dozen rebalancing sessions the prices coincidentally dropped, lending credence to the thinking that BCOM rebalancing triggers price drops of the affected commodities.
Hsueh says January 2025 was exceptional because the price of gold rose while the index sold some holdings during the rebalancing event. That said, investors and companies like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) linked to gold and silver will be following the rebalancing window to assess whether it exerts a notable impact upon the prices of these commodities in major markets around the world.
Please see full terms of use and disclaimers on the Rocks & Stocks website applicable to all content provided by R&S, wherever published or re-published: https://RocksAndStocks.news/Disclaimer
Every year in January, the BCOM (Bloomberg Commodity Index) conducts commodity rebalancing to ensure that no single commodity within the index accounts for more than 15% of the total value of the index. This rebalancing could result in the prices of gold and silver declining as BCOM sells part of their silver and gold holdings in order to lower their share of the index.
This rebalancing exercise is scheduled to take place between Jan. 9-15. Given that the prices of these commodities have surged so much over the past 12 months, their percentage share of the index has risen to exceed the limits set by BCOM. Consequently, some of the holdings will have to be sold, and this could exert downward pressure on the prices of these precious metals on the market.
The reason behind the cap on each commodity’s share within the index is to ensure that the index remains sufficiently diversified and protected from excessive exposure to just a few commodities.
Michael Hsueh, an analyst at Deutsche Bank, revealed in a research note that gold currently takes up 20.4% of the BCOM and during the five-day rebalancing exercise, this proportion could be reduced to approximately 14.9%. The analyst estimates that the index is likely to divest about 2.4 million ounces of gold, which could exert downward pressure on the metal’s price.
Hsueh points out that silver could also be adversely affected during this rebalancing period. Given the immense interest that silver and gold have attracted over the past year, these two commodities are likely to be most affected during index rebalancing.
However, the Deutsche Bank analyst cautions that it isn’t a given that the market price of these commodities will slide as the index sheds some weight to bring their share back within the acceptable range. He says prices can move in either direction during the rebalancing window even if during the past nearly half a dozen rebalancing sessions the prices coincidentally dropped, lending credence to the thinking that BCOM rebalancing triggers price drops of the affected commodities.
Hsueh says January 2025 was exceptional because the price of gold rose while the index sold some holdings during the rebalancing event. That said, investors and companies like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) linked to gold and silver will be following the rebalancing window to assess whether it exerts a notable impact upon the prices of these commodities in major markets around the world.
Please see full terms of use and disclaimers on the Rocks & Stocks website applicable to all content provided by R&S, wherever published or re-published: https://RocksAndStocks.news/Disclaimer
