Year of the metals Year of the metals Year of the metals

Year of the metals

Ole Hansen

Head of Commodity Strategy

Summary:  The new year could become the year of metals with a focus on gold, silver, platinum, copper, and aluminium. In precious metals we believe the prospect for lower real yields and a reduction in the cost of holding a non-interest paying position will support demand, especially through exchange-traded products where investors have been net sellers for the past seven quarters. Industrial metals stand to benefit from supply disruptions, industry restocking as funding costs coming down, and continued demand growth in China offsetting the rest of the world’s weakness. This will, not least, be driven by the green transformation which will keep gathering momentum. In some cases replacing demand for copper and aluminium from traditional end users, who could suffer from a weakening economic outlook in 2024.


Gold and silver to benefit from lower real yields and funding costs

Following a surprisingly robust performance in 2023, we see further price gains in 2024. Gains driven by a trifecta from momentum-chasing hedge funds, central banks continuing to buy bullion at a record pace, and renewed demand from ETF investors, such as asset managers—they’ve been absent for almost two years amid the rise in real yields and increased carry costs. 

With the US Federal Reserve pivoting towards rate cuts, we see the current number of expected rate cuts being justified by a soft landing, while a hard landing or recession would trigger an even bigger need for rate cuts. Record central bank buying in the past two years was the main reason gold managed to rally, despite surging real yields, and why silver suffered more during periods of correction. It did not enjoy that constant, underlying demand. With ETFs, demand is likely to return, and with central bank demand continuing, potentially supported by a weaker dollar, we could see gold reaching a fresh record high at $2300. Silver may find additional support from the expected rally in copper and challenge the 2021 high at $30, signalling a fall in the gold-silver ratio below the 10-year average around the 78.3 ratio. 

In platinum, the combination of largely inelastic demand and risks to uneconomic supply being curtailed have the potential to exacerbate deficits and tighten market conditions. This would enhance a recovery in ETF holdings from a four-year low, and as with silver, create the prospect of platinum doing better than gold next year. It could potentially drive a 250-dollar reduction in its discount towards the five-year average around $750 an ounce. 

Copper and aluminium supported by supply disruptions and green transformation

The industrial metal sector also stands to benefit from the prospect of lower funding costs driving a long overdue period of industry restocking from China to the rest of the world. Copper remains our favourite industrial metal, because there are expectations for robust demand, as seen in China this past year. This has kept exchange monitored stocks near a multi-year low. Increasingly, there’s also a risk of supply disruptions and production downgrades.

We‘ve seen major supply disruptions, specifically for copper, the so-called King of green metals due to its multiple application usage. These disruptions have been led by the government enforced closure of the First Quantum operated Cobra Panama mine. Other mining companies such as Rio Tinto, Anglo American and Southern copper have all been making downgrades, primarily due to rising challenges in Peru and Chile. Overall, it paints a picture of a mining industry challenged by rising costs, lower ore grades and increasing government intervention. 

For now, given the wide spectra of challenges mining companies will face in the coming years, some of which have raised the all-in costs of production and with that their profitability, we prefer direct exposure to the underlying metals, primarily through ETFs.

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/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.