Trending Metals: Why Gold and Silver are Popular?

Despite the fact that US dollar rates are increasing, gold and silver prices are still high due to news of potential US Fed rate cuts. Precious metals such as gold, silver, and platinum have been among the top performers of 2024. More specifically, gold has been going up 11% since January, hitting record highs.  Commodity traders expect the yellow metal to continue increasing.

In the global markets, the spot gold price was swinging around $2,342 per ounce after reaching an intraday high of $2,354 per ounce while silver’s price was moving around the $27.75 level per ounce after it touched an intraday peak of $28.08 per ounce. International silver prices have reached a three-year high.

Commodity market experts have noted that there is a definite climb in the price of precious metals like gold and silver, as the market anticipates the end of high-interest rates, with the Fed expected to cut rates in September. Key factors that have pushed the prices of metals higher, apart from the Fed rate cut expectations, are increasing geopolitical uncertainty and China’s aggressive buying.

The higher gold prices have also been driven partly by higher demand from investors who want to protect their portfolios from high inflation. And the gold rush will continue with gold prices climbing higher. In early March, they hit a record high of $2,160 per ounce whereas now in April the gold price is $2,353.15 per ounce.

Given the current upward direction of the value of gold, many investors are buying or trading the precious metal. The opportunity to capitalise on price increases may be hard to ignore by many traders, and the yellow metal is considered a great addition to any investment portfolio. 

Why traders choose gold and silver?

Precious metals like gold and silver are generally considered safe havens as investors perceive them as stable and reliable investments during times of economic uncertainty. This type of demand usually rises when investors experience uneasiness about market volatility, inflation, or geopolitical tensions.

Gold and silver prices rose dramatically in 2008 during the financial crisis as investors tried to escape from the chaos in the financial markets. Immediately after the turmoil of the 2008 financial markets crisis, the demand for gold rose dramatically by over 100% according to the Producer Price Index of gold from 2008 to 2012. According to research by World Gold Council, the demand for gold increased by 45% in the third quarter of 2008 alone. Silver was also in demand, according to a report from the Silver Institute.

Investors seek gold and silver as alternative assets safeguarding their portfolios against the declining value of securities and high inflation.

Along with the 2008 crisis, gold and silver have been known to perform very well in situations of war, political turmoil and economic downturns. Accordingly, most investors have gold and silver in their investment portfolios as a means to balance out the negative effects of economic uncertainty.

Why are gold prices going up?

Among the main factors causing gold to rise in price is economic unpredictability. Across the world, inflation is going up. However, supply chain disruptions and increasing energy prices have also added to the current economic situation.

In times of economic uncertainty, gold acts as a safe haven asset in a sense that it maintains its value even when other investments depreciate. For instance, gold and silver prices increased while stocks and bonds fell in the last year. This phenomenon adds to the appeal of metals by retail and institutional investors. Additionally, gold and silver are used for the production of industrial goods, jewellery, alloys, and more, which ensures a steady demand for these metals.

In addition, central banks and some other institutional investors have been purchasing more gold as a hedge against inflation and economic instability. In the third quarter of 2022, central banks from all over the world bought 400 tonnes of gold.

Why are silver prices rising?

The driving force behind the hike of demand for silver is the same as that of gold. The ‘safe-haven’ appeal and geopolitical risks, including the Russia-Ukraine war, are some of the reasons that are driving its popularity. Furthermore, silver is a key component of the renewable energy industry. Silver is a key metal in the manufacturing of solar panels, batteries and other electronic supplies. This has also become the major reason of its popularity.

What will happen to Gold and Silver prices in the future?

With the current economic situation, demand for precious metals will continue. Slow global economic growth and growing geopolitical tensions will lead investors to buy gold as a means of protection for their investment portfolios.

Experts consider that demand for silver will increase further and even surpass that of gold. Its application in different industries will keep driving its use. Moreover, a limited supply of these metals will also further boost their prices.

JPMorgan gold forecast

In the last months of 2023, gold prices skyrocketed due to massive buying sprees by central banks and growing investor anxiety because of the two conflicts between Israel and Hamas and Russia and Ukraine. The weakening greenback and speculations of rate cuts by the Fed increased the demand for bullion prices to $2,135.39/oz in December.

After a hiking cycle that saw the Fed Funds rate reach its highest point in 22 years, policymakers in the Federal Open Market Committee (FOMC) have proposed three rate cuts in 2024, with inflation cooling off from the 40-year high in mid-2022. Given the current gold prices which are around $2,000/oz, will there be another bull run for this precious metal if interest rates start to decline?

“Commodities are unlikely to benefit from core inflation in 2024. Inflation should fall to under 3%, so that, along with properly timing the business cycle, are the two conditions needed to initiate long positions, making the outlook for the sector very tactical in 2024,” J.P. Morgan’s Global Commodities Strategy Head Natasha Kaneva said.  She added: “Across commodities, for the second consecutive year, the only structural bullish call we hold is for gold and silver.”

Economic and geopolitical uncertainty are likely to have a positive impact on gold prices because gold is considered a safe-haven asset, which is known for being a good store of value. It has a low correlation to other asset classes, so it can serve as insurance during falling markets and geopolitical uncertainty. In fact, the increase in gold’s price is a direct outcome of the role played by anticipation, which is influenced by expectations of future Fed policy.

Gregory Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan noted: “Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025, though timing an entry will continue to be critical.” Shearer added: “At the moment, gold still appears quite rich relative to underlying rates and foreign exchange (FX) fundamentals, and still looks vulnerable to another modest retreat in the near-term, as Fed rate cut expectations are now running earlier than our forecasts.”

2025: What to expect?

In the opinion of J.P. Morgan Research, the price of gold will reach $2,300 per ounce in 2025. This projection is based on a scenario in which the Fed provides a 125 bp cut through the second half of 2024, enabling gold prices to complete new nominal highs.

The gold price projections are pegged on the forecasts by the Fed officials on core inflation, which will be at 2.4% and 2.2% in 2024 and 2025 respectively, and will revert back to the 2% target in 2026.

According to the forecast of J.P. Morgan economists, by the 2nd quarter of 2024 U.S. growth rate will be only 0.5% quarter-on-quarter. This should motivate the Fed to begin reducing rates in June, eventually releasing 125 bp of cuts at the end of this year to avoid a recession.

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This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.