Precious metals take top spot for a second month Precious metals take top spot for a second month Precious metals take top spot for a second month

Precious metals take top spot for a second month

Ole Hansen

Head of Commodity Strategy

Summary:  For a second month in a row the precious metals sector tops the performance table with a gain around 4%, and while wrong-footed short sellers and geopolitical tensions supported a strong gold rally during October, it was silver's turn to shine this past month thereby allowing it to reclaim lost ground. We maintain a bullish outlook for gold and silver into 2024 in the belief rates have peaked and that Fed funds and real yields will start to trend lower. However, with a great deal of easing already priced into the market the chance of a straight-line rally is unlikely, and both metals will continue to see periods where convictions might be challenged


Key points in this note

  • Gold and silver tops the commodity sector performance table for a second month
  • The past six years have seen strong December performances from gold and silver
  • We maintain a bullish outlook for 2024 but expect a bumpy ride with steep rate cuts are already priced in 

For a second month in a row the precious metals sector tops the performance table with the Bloomberg Precious metals subindex showing a two-month gain close to 11%, its best back-to-back monthly performance since April. While wrong-footed short sellers and geopolitical tensions supported a strong gold rally during October, silver spent November reclaiming lost ground, driven by its relative cheapness to gold and some traders switching their focus to silver as gold approached $2000 and an area that so far has proven difficult to break above.

The tailwinds that have supported these gains are easy to see, not least this past month, when a growing belief in US peak rates has seen the dollar drop by more than 3% against its major G-10 peers while US 10-notes are on track to celebrate their best month since the 2008 global financial crisis with the yield down 64 basis points so far to 4.28%. A turnaround from last month when it was threatening to break above 5%. The latest trigger came earlier in the week when Fed governor Waller, normally a reliable hawk, suddenly converted to the dovish camp by saying "I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%,". The market concluded that Waller would not have expressed such a major change in stance without a nod from Fed chair Powell, the result being a market now pricing in five full 25 basis points cuts next year with the through in rate cuts expected around December 2025 at 3.5%.

In our latest precious metal update, we highlighted how gold and silver have seen six years of back-to-back strong December performances with these so-called ‘Santa’ rallies yielding an average return in gold of 4% and 7.25% in silver. Our gold monitor below highlights some of the main drivers for precious metals from movements in the dollar, real yields, cost of carry and the future direction of US Fed Funds. The two bottom charts show the distinct difference in behavior between ETF investors and Futures traders such as hedge funds.

Money managers like hedge funds and CTA’s follow momentum, meaning they buy into strength, like the current rally, while selling into weakness when the market declines. In other words, they are not that sticky and will change positions and direction should the technical and/or fundamental outlook change. Asset managers meanwhile remain sidelined as seen through the small uptick in ETF demand during a period when bullion rallied by more than 200 dollars. An explanation for their hesitancy shall among others be found in the rising gap between gold and US real yields as well as the current high cost of carry which will only come down when the Federal Reserve starts cutting rates. Until then, the rally will not be firing on all cylinders and be exposed to the usual and sometimes deep corrections.

It is also worth mentioning that central bank demand remains very robust and is likely to continue to provide a soft floor under the gold market with total demand in 2023 potentially exceeding last year's record. Central bank buying of gold is one of the reasons the yellow metal during the past year has managed to rally despite surging real yields, and why silver suffered more during periods of corrections as they do not enjoy that constant and underlying demand.

We maintain a bullish outlook for gold into 2024 in the belief rates have peaked and that Fed funds and real yields will start to trend lower. However, with a great deal of easing already priced into the market the chance of a straight-line rally is unlikely, and both silver and gold will continue to see periods where convictions might be challenged.

From a technical standpoint, the 50-day moving average is about to cross above the 200-day, and as long spot gold holds above $2007, the technical setup points to higher prices, with a break above $2063, the August 2020 record closing high signalling the potential for an extension towards $2130.

Source: Saxo

Silver’s catchup rallies this past month has seen it return to challenge resistance around $25.25 ahead of $26.08, the April to May rally peak. The market has one eye on industrial metals, especially copper which trades near a ten-week peak amid supply disruptions and strong green transition demand, and not least the COP28 Summit in Dubai which following the hottest year ever recorded in human history have seen calls being made for accelerated action to combat an escalating climate crisis. Any agreements that are seen as speeding up the transition towards renewable energy will likely support silver, a critical component in the manufacturing of solar panels, at a time when the supply outlook look set to tighten further.

Source: Saxo
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.