Gold and silver to rally through the end of 2024, copper likely to lag
NEW YORK (August 15) Gold has seen its best performance in decades in 2024 amid its climb to a new record high of $2,483.35, and while the yellow metal has struggled to rally above $2,480 on three separate occasions, one analyst says it's only a matter of time before it succeeds and breaks above $2,500.
“The metals market has certainly been volatile this year with gold, silver and copper leading the charge,” said Scott Bauer, CEO of Prosper Trading Company. “The outlook for precious and industrial metals appears to be positive as demand for gold and silver has skyrocketed, although Dr. Copper may have separated itself from the group.”
Bauer noted that one of the biggest drivers of the bullish outlook for precious metals is anticipation that the Fed will cut interest rates. The CME FedWatch Tool shows that Wall Street has priced in a 100% probably for a cut in September and “around 80% probabilities for further cuts in both November and December.”“Historically, commodities are typically seen as hedges against inflation,” he said. “However, the U.S. dollar has gained during the same period as these metals, though it’s been retreating somewhat in August.”
“As the dollar has weakened, commodities like metals and oil typically do well because higher quantities of a commodity can be bought with dollars, and those with non-dollar currencies can buy more dollars with their own currencies,” he added. “This then comes down to the basic economic principle of supply and demand. All three of these metals are either undersupplied now or will likely be in the near future.”
In the case of copper, Bauer noted that the red metal hit an all-time high in May and has since pulled back roughly 20%. “Demand increased due to its use in building AI chips and in electric vehicle production, with COMEX Copper futures seeing a record level of participation this year as market participants considered potential supply lags,” he said.
“However, the recent selloff in global technology stocks and doubts about the growth of the AI industry has hit the price of copper hard,” he noted. “Much of copper’s demand has come from China, and China’s recent economic data has shown that it is not recovering. If weak Chinese orders and demand persist, it may suggest that the decline is more than temporary.”
Turning to gold, Bauer said that the prospect of lower interest rates and ongoing geopolitical risks serve as tailwinds for the yellow metal.
“Amid this ongoing uncertainty, Micro Gold futures July ADV increased 68% to 106,000 contracts as more market participants turned to the safe haven asset,” he noted. “Additionally, central banks worldwide have been buying gold at record levels. Led by China, central banks purchased 1,037 tonnes of gold in 2023, according to the World Gold Council (WGC). WGC annual survey data showed that 29% of central banks expected their own gold reserves to increase in the next 12 months.”
As for silver, Bauer highlighted that “Micro Silver futures have gained this year due to strong demand for its utility in emerging technology, especially given that it can conduct electricity faster than any other metal.”
“The Silver Institute reported a 184.3 million-ounce deficit in 2023 on the back of robust industrial demand,” he noted. “Demand continues to outpace supply and deficits will likely persist beyond 2024 due to the expanding industrial demand for silver.”
Bauer pointed to the gold/silver ratio as evidence that the gray metal is due for a rally. “Historically, when the ratio has topped 80, it has signaled that silver is inexpensive relative to gold,” he said. “The last three times this happened, silver rallied 40%, 300% and 400%. When the ratio has fallen below 20, it has signaled that gold is inexpensive relative to silver.”
“Currently, the ratio remains historically high,” he added. “The most recent example of silver being inexpensive compared to gold was back in 2020 at the beginning of the COVID-19 pandemic when the record gold/silver ratio reached 123:1 but then quickly moved back closer to 60:1.”
“The possibility of interest rate cuts and ongoing geopolitical events all provide potential momentum for gold and silver to rally through the end of the year,” Bauer concluded. “Copper, with its closer ties to economic data coming out of China, could find itself trailing comparatively for the near future.”
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