Macroenvironment and metals

The most likely factor that could trigger an eventual rally in precious metals is central bank monetary policy. The US Federal Reserve is expected to cut interest rates in 2024, which will contribute to a weaker dollar and cheaper financing, two important factors affecting this market. That's because when interest rates fall in an economic environment, bond prices tend to rise - and bond yields fall. The prospect of lower real bond yields could thus bring increased investor demand for precious metals such as gold or platinum, not only through physical purchases but also through exchange trades. [2]

Gold

The past two years have seen record gold purchases by central banks, which according to the World Gold Council (WGC) has been the main reason why the price of the precious metal has soared despite rising bond yields.* The US banking crisis in early 2023, a slowing global economy and geopolitical tensions are just some of the main reasons that have helped gold reach a new peak. Despite rising interest rates and increasing bond yields, gold prices have risen sharply on fears of a slowing global economy. In addition, the recent geopolitical conflict between Israel and Hamas has increased market volatility and it is no news that gold has become a popular asset as it provides a safe haven for investors in times of market volatility.  Given the above factors, with central bank demand set to continue (most central banks are looking to increase the proportion of gold reserves over the next five years), including a possible weakening of the US dollar, it is likely that the value of gold could surpass new highs this year. While experts at JP Morgan estimate that it could break the $2,300 per ounce mark, USB Bank is a bit more cautious, predicting a value of $2,150 per ounce by the end of 2024. [3]

The change in the price of gold over the last 5 years (Source: Tradingeconomics)*

Silver

Silver has recently undergone a correction, which has meant a worse price development compared to gold.* One of the reasons for this has been less interest from central banks in this metal compared to gold. Silver may also rise in 2024 due to the expected recovery in the copper market, reaching 2021 highs of around USD 30 per ounce. [4] According to more conservative estimates by Coinforecast, the price of this white metal could reach approximately USD 27.98 by the end of 2024, a year-on-year change of +16%. [5] Demand for this commodity is expected to continue to grow in 2024, specifically from investors and also in jewellery manufacturing.

The change in the price of silver over the last 5 years (Source: Tradingeconomics*)

Platinum

At the start of 2023, the World Platinum Investment Council (WPIC) expected platinum demand to be 556,000 ounces higher than supply, due to rising automotive demand and strong exports from China, as we saw late last year when the platinum price rose. The good news for investors is that the deficit in supply versus demand is expected to continue this year. Indeed, platinum is used in the production of catalytic converters for cars and increasingly in the production of 'green' hydrogen, which is produced from renewable sources as opposed to fossil fuels.

Investment in hydrogen technology is expected to grow by at least $570 billion by 2030. If the sector realises its full potential, this could mean a significant increase in demand for platinum in the medium to long term. [6]

Change in the price of platinum over the last 5 years (Source: Tradingeconomics)*

Palladium

Prices for the metal, which carmakers use in exhaust systems to reduce emissions, have fallen by 70% from an all-time high of $3,440.76 in 2022 following Russia's invasion of Ukraine.* But high prices have led to palladium being replaced by cheaper platinum. However, as its production increased and demand fell at the same time, the metal's market price fell below $1,000 per ounce.* As Reuters reports, with a 50% drop in 2023, the metal will see its worst decline in value since 2008, when demand for the commodity was hit by the financial crisis.* However, by 2024, production is expected to gradually decline and palladium mines are expected to close. This could contribute to a decline in supply, leading to a rise in price. [7]

Change in the price of platinum over the last 5 years (Source: Tradingeconomics)*

Potential in 2024

The main factors that will influence the price of precious metals in 2024 will be mainly the activities of central banks related to the development of interest rates, the development of the value of the US dollar, but also the demand for investment products that follow the price of the selected asset on the market. However, demand from investors and companies that mine, buy and use these metals in industrial production will also be important.

Olivia Lacen, chief analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results

[1,2,3,4,5,6,7] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.