Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of Commodity Strategy
Gold continues to go from strength to strength, and despite an increasingly overbought market condition as seen through relative strength indicators, we are witnessing FOMO (fear of missing out) on clear display, driving the spot price to a fresh record high this week at USD 2,365. In dollar terms it has so far returned 14%, already exceeding last year’s 13% gain while gold’s ability to withstand the stronger dollar has seen even stronger year-to-date returns against most other currencies, examples being EUR (16%), AUD 17% and not least CHF and JPY, both up around 23%.
Some of the current drivers receiving a great deal of attention, are:
With these developments in mind, today’s US inflation report may not do much to alter the current bullish narrative. Analysts are currently looking for the headline year-on-year CPI print to rise 0.2% to 3.4% with the core falling one-tenth to 3.7%. A higher-than-expected print may do little to reduce rate cut expectations below the two priced in for 2024, while at the same time support investment metals as inflation picks up. A lower number, meanwhile, will support rate cuts and with that, the prospect of lower funding cost, potentially attracting fresh demand from ETF investors who have been net sellers since 2022.
As gold continues to scale new heights, the attention is slowly turning to some of the other semi-precious investment metals, so far primarily silver, while the platinum-group metals continue to fall behind, thereby lifting their relative cheapness to record levels. The gold-silver ratio has fallen from above 90 ounces of silver to one ounce of gold last month to below 84, not far from the five-year average around 83. For the past three years, the ratio has been trading with an upward trending bias, which potentially could be broken on a sustained break below 82.50.
Platinum, meanwhile, has seen its discount to gold surge higher with the ratio hitting a record 2.5 on Monday before retracing the current 2.4 amid signs of technical buying starting to emerge. The platinum market is expected to see a widening deficit in 2024, but until we see inventories that built up in recent years being consumed, the market will likely struggle to attract much needed demand from investors in ETFs who have kept a near-unchanged holding around 2.9 million ounces since November, down from a record 4 million ounces in July 2021. Leveraged money managers in the futures market, held a neutral position in the week to April 2, but with technical outlook now improving we may finally see some buying action here as well.
Platinum has yet to turn a profit so far this year, thereby trailing gold by a considerable margin. From a technical standpoint, the price action has turned more friendly with the metal having gained more than 6% during the past week alone. As per the chart, the spot price probably needs to break above USD 1000 followed by USD 1040 before attracting additional momentum buying from leveraged accounts.
Silver, meanwhile, has also benefited from its relative cheapness to gold and not least the recent recovery among key industrial metals, where copper is supported by a tightening supply outlook and global growth optimism. The metal trades up by around 9% in the last week, after the break above USD 26 finally helped get the ball rolling, and while support has been established in the USD 27 area, the metal has yet to make a decisive break above USD 28 on route to the May 2021 high at USD 28.75.
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
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