Trending Metals: Why Gold and Silver are Popular

May 30, 2024

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Despite rising US dollar rates, gold and silver prices remain high due to potential US Fed rate cuts. Precious metals like gold, silver, and platinum have been among the top performers of 2024. Notably, gold has increased by 11% since January, reaching record highs. Commodity traders expect this upward trend to continue.

In global markets, the spot gold price is fluctuating around $2,342 per ounce, after hitting an intraday high of $2,354 per ounce. Meanwhile, silver is trading around $27.75 per ounce, with an intraday peak of $28.08 per ounce. International silver prices have reached a three-year high.

Commodity market experts attribute the rise in precious metal prices to the anticipated end of high interest rates, with the Fed expected to cut rates in September. Additional factors driving up metal prices include increasing geopolitical uncertainty and China’s aggressive buying.

The higher demand from investors seeking to protect their portfolios from high inflation has also contributed to the surge in gold prices. Gold hit a record high of $2,160 per ounce in early March and has now reached $2,353.15 per ounce in April.

Given the current upward trend in gold’s value, many investors are buying or trading this precious metal. The opportunity to capitalize on price increases is hard to ignore, making gold a valuable addition to any investment portfolio.

Why Traders Choose Gold and Silver

Precious metals like gold and silver are considered safe havens because investors see them as stable and reliable investments during times of economic uncertainty. Demand for these metals usually rises when investors are uneasy about market volatility, inflation, or geopolitical tensions.

Gold and silver prices surged dramatically during the 2008 financial crisis as investors sought refuge from the chaos in the financial markets. After the turmoil of 2008, the demand for gold rose significantly, increasing by over 100% according to the Producer Price Index from 2008 to 2012. Research by the World Gold Council showed that gold demand increased by 45% in the third quarter of 2008 alone. Silver also saw a rise in demand, according to a report from the Silver Institute.

Investors turn to gold and silver as alternative assets to protect their portfolios against the declining value of securities and high inflation. These metals have historically performed well during wars, political turmoil, and economic downturns. Consequently, many investors include gold and silver in their portfolios to counterbalance the negative effects of economic uncertainty.

Why Are Gold Prices Going Up?

One of the main factors driving up gold prices is economic unpredictability. Inflation is rising worldwide, and supply chain disruptions and increasing energy prices are exacerbating the current economic situation.

In times of economic uncertainty, gold acts as a safe haven asset, maintaining its value even when other investments depreciate. For instance, gold and silver prices have increased while stocks and bonds fell over the past year. This phenomenon enhances the appeal of these metals to both retail and institutional investors. Additionally, gold and silver are used in the production of industrial goods, jewelry, alloys, and more, ensuring steady demand.

Furthermore, central banks and other institutional investors have been purchasing more gold as a hedge against inflation and economic instability. In the third quarter of 2022, central banks worldwide bought 400 tonnes of gold.

Why Are Silver Prices Rising?

The demand for silver is rising for similar reasons as gold. Its “safe-haven” appeal and geopolitical risks, including the Russia-Ukraine war, are driving its popularity. Additionally, silver is crucial in the renewable energy industry. It’s a key metal in manufacturing solar panels, batteries, and other electronic supplies, which significantly contributes to its increasing demand.

What Will Happen to Gold and Silver Prices in the Future?

Given the current economic situation, the demand for precious metals is expected to continue. Slow global economic growth and increasing geopolitical tensions will likely lead investors to buy gold to protect their investment portfolios.

Experts believe that the demand for silver will increase further and may even surpass that of gold. Its diverse industrial applications will keep driving its use. Moreover, a limited supply of these metals will also boost their prices.

JPMorgan Gold Forecast

In the last months of 2023, gold prices soared due to massive buying sprees by central banks and growing investor anxiety over the conflicts between Israel and Hamas, and Russia and Ukraine. The weakening dollar and speculations of Fed rate cuts pushed bullion prices to $2,135.39/oz in December.

After a hiking cycle that saw the Fed Funds rate reach its highest point in 22 years, the Federal Open Market Committee (FOMC) has proposed three rate cuts in 2024, with inflation cooling off from the 40-year high in mid-2022. Given the current gold prices, which are around $2,000/oz, there might be another bull run for this precious metal if interest rates decline.

Economic and geopolitical uncertainty are likely to positively impact gold prices because gold is considered a safe-haven asset and a good store of value. It has a low correlation to other asset classes, making it a form of insurance during market downturns and geopolitical uncertainty. The increase in gold’s price is influenced by expectations of future Fed policy.

Gregory Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan, noted, “Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025, though timing an entry will continue to be critical.” Shearer added, “At the moment, gold still appears quite rich relative to underlying rates and foreign exchange (FX) fundamentals, and still looks vulnerable to another modest retreat in the near-term, as Fed rate cut expectations are now running earlier than our forecasts.”

What to Expect in 2025?

J.P. Morgan Research projects that the price of gold will reach $2,300 per ounce in 2025. This projection is based on a scenario where the Fed implements a 125 basis point rate cut in the second half of 2024, enabling gold prices to achieve new nominal highs.

These gold price projections are based on Fed officials’ forecasts for core inflation, expected to be 2.4% in 2024 and 2.2% in 2025, returning to the 2% target by 2026.

According to J.P. Morgan economists, the U.S. growth rate will slow to 0.5% quarter-on-quarter by the second quarter of 2024. This slowdown is expected to prompt the Fed to begin reducing rates in June, ultimately implementing 125 basis points of cuts by the end of the year to avoid a recession.

Disclaimer:

This information is not considered investment advice or an investment recommendation but instead a marketing communication. Forex Trading World is not responsible for any data or information provided by third parties referenced in this communication.

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