Gold, Silver Could See Structural Rally Over Next 12-24 Months As US Fiscal, Energy And AI Pressures Collide, Says Kotak Neo's Anindya Banerjee

Gold and silver may be facing near-term pressure from a more hawkish US Federal Reserve, but the longer-term setup for both precious metals could remain constructive as fiscal pressures, energy inflation, rising AI investment and global bond-market stress increasingly intersect, according to Anindya Banerjee, Head of Research – Currency, Commodities and Interest Rates at Kotak Neo.

The outlook comes at a time when the immediate backdrop for bullion has turned less supportive. Federal Reserve Chair Kevin Warsh's recent comments have pushed markets to raise their expectations of a September rate hike, while a stronger dollar and higher Treasury yields have added to the pressure on precious metals.

Gold fell more than 3% on Friday and remained under pressure on Monday, while silver also declined as investors reassessed the outlook for US monetary policy. At the same time, oil prices moved higher amid renewed tensions involving the US and Iran, adding another layer to the inflation debate.

Banerjee's longer-term view rests on what he describes as an interconnected set of pressures involving energy, inflation, Treasury financing, artificial intelligence, Japan and US fiscal policy.

Gold, Silver Outlook: Why The Fed May Not Be The Whole Story

The immediate pressure on precious metals is relatively straightforward. Higher interest rates increase the opportunity cost of holding assets that do not generate income, while a stronger dollar tends to weigh on dollar-denominated bullion.

But the broader macro picture is more complicated.

US fiscal deficits remain elevated, while interest costs have crossed the $1 trillion annual mark. Higher rates increase refinancing costs for the government, potentially adding to borrowing requirements and Treasury issuance.

At the same time, the AI investment boom is creating another major source of demand for long-duration financing. Major technology companies have increasingly turned to the bond market to fund data centres and other AI infrastructure.

“Uncle Sam needs duration. Big Tech needs duration,” Banerjee said, highlighting the competition for long-term capital between government borrowing and the private sector's AI investment cycle.

This creates a difficult policy equation. Raising rates may help contain inflation but can also increase the cost of servicing government debt and financing private investment.

The Treasury has already increased the size of some long-duration bond buybacks to at least $4 billion per operation amid pressure in the long end of the US government bond market.

Japan, Energy Add To The Pressure On Global Markets

Japan could become another important link in the chain. The yen has come under renewed pressure while Japanese government bond yields have climbed sharply. A sustained rise in Japanese yields could alter the relative attractiveness of domestic and overseas bonds and potentially affect global capital flows.

Japan's large role in international bond markets also makes developments in its currency and government debt relevant for US Treasuries.

“The yen-funded carry trade looks peaceful until it unwinds. If Japanese yields continue to rise and the yen remains under pressure, that can become another transmission channel for volatility back into global bond markets,” Banerjee said.

Energy markets add another complication. Crude prices have recovered after last week's decline as geopolitical tensions involving Iran raised concerns over potential disruption around the Strait of Hormuz.

Higher oil prices can feed directly into inflation expectations, making the Federal Reserve's policy choices more difficult at a time when markets are already debating whether rates need to move higher.

The combination of fiscal borrowing, AI-related debt issuance, energy prices and global bond-market pressures therefore creates a more complicated environment than the Fed's September decision alone might suggest.

Gold, Silver: Why The 12-24 Month Outlook Could Be Different

The immediate direction of gold and silver will remain sensitive to US interest-rate expectations, Treasury yields and the dollar. A stronger-than-expected labour market or inflation reading could reinforce expectations of tighter monetary policy and keep pressure on bullion.

The structural picture, however, could become more favourable if governments continue to run large deficits, debt financing requirements remain high and financial conditions eventually require greater liquidity support.

“Gold doesn't need a debtor sitting across the table. It doesn't need to be refinanced and it cannot be printed,” Banerjee said.

That distinction is central to the longer-term case for gold as a store of value outside the conventional liability chain.

Silver has an additional advantage because of its industrial component.

“Gold is the monetary heavyweight. Silver is the hybrid,” Banerjee said.

Silver therefore has the potential to benefit from both monetary demand and a broadening commodity cycle, particularly if industrial demand remains resilient.

The result could be a divergence between the short-term and medium-term outlook. Higher-rate expectations may continue to create volatility for precious metals in the months ahead, but if fiscal, energy and financing pressures continue to build, the structural case for gold and silver could strengthen over the next 12-24 months.

For now, markets will closely track US labour-market data, inflation indicators, Treasury yields and the Federal Reserve's September policy decision. These factors will determine whether the current correction deepens or becomes another phase in a longer-term precious-metals cycle.

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