Gold and silver at highs

The yellow metal reached a new all-time high during the afternoon session on October 21, 2024, with futures for December delivery rising to more than $2,754 per ounce, while spot gold climbed to a record $2,740. Both later fell, but rallied over the next day, moving within a few dollars of their highs. Silver also saw significant upward momentum, with prices hitting 12-year highs, rising nearly 9% in the three trading days since October 18. The December contract was worth $34.60 on October 22, while the spot price was $34.40. The value of gold was up about 38% from the same period last year, while silver had a nearly 50% appreciation. *

The evolution of the price of gold futures contracts over the last 5 years. (Source: Investing) *

Spot gold price development over the last 5 years. (Source: Investing) *

The evolution of the price of silver futures contracts over the last 5 years. (Source: Investing) *

Evolution of the silver spot price over the last 5 years. (Source: Investing) *

Investors reach for safe havens

The main driver for both gold and silver is the dubiously deepening tensions in the Middle East. Over the weekend, Israel continued to shell Gaza and Hezbollah targets in Beirut, following a series of attacks from Lebanon and an assassination attempt on the Israeli prime minister, which Israel blames on Hezbollah.[1] Traders have also sought safe havens ahead of the upcoming US presidential election, as the two candidates have very different views on running the country, compounded by the unpredictability of the results. While according to the Real Clear Politics polling average, as of October 22, Kamala Harris was leading the contest with 49% compared to the 48%[2] , held by Donald Trump, in the case of the betting average, Trump had a significant lead with 60% over his opponent, who had less than 39%.[3] Other betting and analytical companies showed similar results.[4] Gold is also supported by lower interest rates, aided by the Fed's expected cut during the November meeting, which was as much as 89% likely according to the CME FedWatch tool.[5]

Industrial metals benefit from Chinese incentives

The decision of the People's Bank of China (PBOC) to adjust interest rates affected not only gold, but supported industrial metals in particular. The local central bank cut base rates by an expected 25 basis points to 3.1% for 1-year loans and to 3.6% for 5-year loans, a record low. The PBOC governor announced the move during a financial forum held on October 18, while also announcing further cuts over the coming months, such as to the repurchase rate and others. This major move comes after September's cuts to bank reserve requirements and the repo rate as part of stimulus measures to support China's economy and the declining property market. [6]

The price of copper rose

Copper, a key metal used in electrification and construction, has seen a surge following China's decision. On 21 October, the price of futures contracts on the London Metal Exchange (LME) rose by around 1% to $9,758, but later pared gains to stand at $9,622 as of 22 October. The price of the metal has thus stabilised at a several-month high, while year-on-year it has risen by around 20%.  *

The evolution of the LME copper futures price over the last 5 years. (Source: Investing) *

Challenges in China's economic recovery

Despite Beijing's efforts to give the country momentum through monetary easing and stimulus, deep-seated problems continue to weigh on its recovery. The collapse of the property market, declining confidence and rising debt pose significant obstacles to long-term growth. In the past, China relied on heavy investment in the real estate sector, but by 2021 it had fallen into crisis, leaving a huge backlog of unbuilt and unused buildings and debt. Meanwhile, the government's emphasis on high-tech self-sufficiency has shifted resources away from addressing immediate economic problems, while the manufacturing sector faces its own difficulties in overproduction. In addition, these problems are compounded by high youth unemployment and declining Chinese spending, which are caused by overall uncertainty.[1]

Conclusion

In conclusion, the rise in precious and industrial metal prices reflects the confluence of geopolitical disputes and economic uncertainty. Gold and silver have attracted significant investment as a safe haven amid rising tensions and an unpredictable political environment in the US. Copper, meanwhile, has benefited from China's loosening monetary policy. As these events continue to unfold, they will shape the future trajectory of commodity prices, requiring constant attention.

Adam Austera, Principal Analyst at Ozios

* Past performance is no guarantee of future results

[1] https://www.aljazeera.com/features/2024/10/17/china-new-stimulus-revive-economy

[1] https://www.politico.eu/article/israel-strikes-beirut-gaza-following-drone-attack-on-netanyahus-home/

[2] https://www.realclearpolling.com/polls/president/general/2024/trump-vs-harris

[3] https://www.realclearpolling.com/betting-odds/2024/president

[4] https://economictimes.indiatimes.com/news/international/world-news/is-a-trump-victory-on-the-horizon-betting-markets-show-dramatic-changes-ahead-of-polls/articleshow/114400314.cms?from=mdr

[5] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

[6] https://www.cnbc.com/2024/10/21/china-lowers-benchmark-lending-rates-by-25-basis-points.html