Head of Commodity Strategy
In our end of March update, we wrote about how gold's recent behaviour, where the yellow metal had been rising without clear reasons to explain the move, deserved a great deal of respect as it pointed to sustained strong underlying demand. Since then, the rally which started back in early October when Hamas attacks on Israel raised the geopolitical temperature, has gone from strength to strength, resulting in last month's 8.3% gain to a record high.
Today, gold reached the USD 2,300 target we set out in our Q1 24 outlook titled “Year of the metals”, where we expressed our bullish views on gold, silver, copper, and eventually also platinum. It is however interesting to note the target was achieved without three important drivers, namely rate cuts, where expectations have fallen from above seven at the start of the year to less than three currently. With rate cuts on the horizon, we envisaged a weaker dollar, and lower real yields would lead to a pickup in demand for ETFs from real money managers. Neither of these have yet materialised, and instead gold has been driven higher by hedge funds, or speculators enjoying the strong momentum that has been set in motion by strong demand from investors around the world responding to heightened geopolitical tensions and debt-financed growth.
In our Q2 24 outlook released earlier this week, we highlighted the reasons why we believe the year-long consolidation phase across the commodity sector is over, not least due to expectations for industrial and precious metals to perform well, together with energy and a heavily shorted grains sector.
In the short term, both gold and silver will likely consolidate, but with rate cuts leading to dollar and yield tailwinds still awaiting on the horizon, we see gold potentially make an extension towards USD 2,500 and silver towards USD 30, the February 2021 high. The biggest threats to prices being the unlikely lowering of the geopolitical temperature, central banks pausing their aggressive gold buying spree while adapting to higher prices, and hedge funds pairing back part of the near 300 tons of gold they accumulated through the futures market last month.
The strong momentum rally that followed last month's breakout above USD 2,075 has so far not been challenged, with a mid-March consolidation only triggering a 50-dollar correction. The lack of notable corrections, potentially challenging recently established longs held by hedge funds and CTAs, has been key to gold's continued rally. Using Fibonacci as a guide, a correction at this stage to USD 2,245 or even USD 2,225 may not be enough to challenge the mentioned long positions. Following a period of consolidation, the prospect for rate cuts and a resumption of central bank buying could potentially see the price reach for USD 2,500 later in the year, while the big line in the sand below remains USD 2,075
Silver, meanwhile, has for a while been struggling relative to gold, not least because the white metal has not enjoyed support from central bank buying. During the past month, however, the semi-precious metal which derives around half of its demand from industrial applications has received a boost from a recovering industrial metal sector, not least copper which has jumped to a 14-month high in response to tightening mined supply outlook and Chinese smelters discussing production curbs at a time where hopes for a global recovery in demand gather momentum.
During the past week, the gold-silver ratio has slumped from above 90 ounces of silver to one ounce of gold to the current 84.7, a move that highlights silver's ability to rally hard when it receives dual support from both gold and copper. From a technical perspective, the break above resistance-turned-support around USD 26 was relatively quickly followed by a break above USD 27, the March 2022 high, with the next major level to watch being the USD 28 area, our initial target for the year, ahead of the decade high at USD 30.
Commodity articles:
3 April 2024: Cocoa: A 50% farmgate price boost a step in the right direction
27 Mar 2024: Crude oil maintains support amidst array of bullish signals
26 Mch 2024: Gold's behaviour points to sustained demand
20 Mch 2024: Attacks on Russian refineries lift risk premium and crude prices
19 Mch 2024: How to add copper exposure to your portfolio
15 Mch 2024: Commodity weekly: Green shoots seen across key sectors
13 Mch 2024: Lack of catalyst pushes crude into tightening range
8 Mch 2024: Commodity weekly: Gold and silver steal the limelight
8 Mch 2024: Investing with options - Gold optionality
6 Mch 2024: How to add gold exposure to your portfolio
6 Mch 2024: Video: What happened to the gold prices?
1 Mch 2024: Grains dip, cocoa soars, gold and oil see rays of strength: February’s commodity mix
Previous "Commitment of Traders" articles
2 Apr 2024: COT: Gold and crude longs maintained amid strong underlying support
25 Mch 2024: COT: Hedge funds zoom in on crude, copper and silver
18 Mch 2024: COT: Hedge funds buying expands from precious metals to copper and grains
11 Mch 2024: COT: Specs rush back into gold, elevated yen short in focus
4 Mch 2024: COT: Underinvested speculators fuel gold's latest surge
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)