Metal Prices Surge: Bullish Momentum Continues
The metals market has been experiencing a significant surge recently, propelled by a series of factors including geopolitical tensions, loosening monetary expectations, and a remarkable bullish trend in copper prices witnessed in New York. On the 20th, spot gold shattered records, soaring above $2,440 per ounce, marking a historic high with a daily gain of 1%. Meanwhile, silver saw an impressive climb of approximately 2.5%, crossing the $32 mark, reaching an eleven-year high. LME copper futures prices surged over 4% to $11,104 per ton, once again achieving unprecedented levels.
This dramatic increase in prices can be attributed to ongoing geopolitical uncertainties, coupled with a tempered inflation outlook indicated by the U.S. Consumer Price Index (CPI) for April, which has bolstered expectations for potential interest rate cuts. Additionally, the European Central Bank (ECB) is anticipated to consider a rate cut in June. Last Friday, notable activity in the copper market developed, with COMEX copper prices spiking by 4.21% to $5.0825 per pound, culminating in a weekly increase of over 9%.
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Experts interviewed attributed the recent rally in metal prices to a weakened U.S. dollar and heightened expectations for rate cuts by the Federal Reserve. Traders who previously attempted to sell dollars during its rebound now have greater motivation to exchange their holdings for alternative currencies and precious metals. Furthermore, the resurgence of the global Purchasing Managers' Index (PMI) since the beginning of the year, alongside China's economic recovery initiatives, has undeniably contributed to this bullish sentiment. Major institutions suggest that this "Year of the Metals" trend shows no signs of waning.
On the same day, gold not only regained its historical high but surpassed it by reaching $2,448 per ounce by 14:10 Beijing Time. This marked an almost 20% increase for the year. Even amidst temporary geopolitical stabilization, gold has exhibited a robust upward trajectory.
Recent data released from the U.S. shed light on the weakening momentum of economic growth and decreasing inflation, emphasizing the need for possible policy adjustments. On the 15th, the U.S. Bureau of Labor Statistics reported a 3.4% year-over-year increase in the CPI for April, slightly down from 3.5% the previous month, in line with market expectations. The core CPI showed a monthly rate of 0.3%, marking a decrease for the first time in six months, signaling a gradual cooling of inflation. This trend sparked speculation about the Federal Reserve possibly implementing interest rate cuts by September, with the FedWatch tool now indicating a 60% probability for at least two rate cuts this year. The resulting dip in the dollar index and U.S. Treasury yields has further incentivized a rise in gold prices.
Moreover, the ECB has recently voiced its support for a potential rate cut in June. ECB Executive Board member Isabel Schnabel stated an openness to these prospects, urging caution post-cut. Another ECB Governing Council member, Francois Villeroy de Galhau, affirmed the strong likelihood of a rate reduction, reinforcing the sentiment in the market.
Matt Weller, Global Research Director at Gain Capital, explained that the upcoming easing in the G3 economies will undoubtedly benefit gold prices. Adding to the equation, the U.K. is expected to announce its April CPI data soon. Following a weaker inflation report last week, traders speculate that the Bank of England may also join the ECB in rate reductions, further bolstering precious metals in the market.
A significant driving force behind gold's ascent is the resurgence in demand, particularly from sovereign nations. As noted by Weller, the situation in China, the world's second-largest economy, remains prominent. A recent report from the U.S. Treasury highlighted China's record sale of $53.3 billion in U.S. sovereign debt and agency bonds, while simultaneously boosting its gold reserves, which reached 4.9% of total reserves in April, the highest level since 2015.
Furthermore, for several emerging market central banks, increasing gold holdings serves as a hedge against the inflationary pressure of traditional monetary policies. Traders cite that gold is still in a clearly bullish structure, with expectations for buyers to capitalize on any price dips, unless there is a breach below the 50-day moving average or previous support at approximately $2,280 per ounce, which would challenge the current bullish strategy.
Silver has mirrored gold's robust performance, demonstrating even stronger momentum in the short term. While international gold prices have soared, silver has broken new ground as well, with an eleven-point-eight percent surge propelling it above $30 per ounce, while platinum advanced by eight-point-seven percent to close at $1,080 per ounce.
Year-to-date, silver has outperformed gold, boasting an increase of over 30% compared to gold's nearly 20%. Despite the potential for temporary resistance—such as a rebound in the dollar or profit-taking—traders anticipate that, provided silver does not fall below $28.80, it stands a good chance of maintaining its upward momentum. A sustained position above $30 could signal a bullish trek toward $35. The outlook for interest rate cuts remains a primary catalyst driving market enthusiasm for precious metals.
Weller pointed out that the robust performance of precious metals preceded last week’s U.S. data release. The weak results ignited a new wave of buying. Comparing the recent rallies in both gold and copper, he asserts that silver could breach the $30 barrier significantly, with its price contingent upon additional positive data.
As of now, the gold-to-silver ratio hovers around 76.86, with market analysts believing that this ratio is expected to continue correcting. Some international banking experts have suggested that, based on historical averages, the ratio should be around 60, indicating room for silver to catch up. Additionally, given silver’s dual attributes as a financial and industrial metal, the anticipated post-pandemic recovery in industrial demand further supports an adjustment in the gold-to-silver ratio toward historical norms.
The future of silver requires careful observation of when it may reverse. Yan Xingyue, a macroeconomic researcher from Shanghai Zhongqi Futures, indicated in an interview that typically, gold leads in a rally before peaking, allowing silver to gain momentum and ultimately reverse first. Nevertheless, both gold and silver currently exhibit strong momentum.
On the copper front, a significant short squeeze led the COMEX copper price to surpass the critical barrier of $5 per pound, achieving a record high of $5.1280 on Wednesday the 15th, and registering a weekly accumulation of 9.01%. Market participants attribute this volatility primarily to substantial short activities.
However, opinions regarding copper’s future trajectory have become divided. David Scutt, a senior strategist at StoneX, remarked that while he remains bullish on the long-term outlook, the late-week sharp rise was troublesome, indicating increased short-term risks. He noted the emergence of premiums between COMEX futures and those listed on other global exchanges, where some investors have been shorting COMEX contracts in anticipation of corrections. Unfortunately, a bullish technical and fundamental outlook has encouraged buyers, forcing shorts to cover their positions, resulting in a classic short squeeze.
This phenomenon explains the exceptional rise in COMEX copper prices alongside the highest trading volume since November 10, 2016. As has been observed in other commodities, such surges typically don’t last long.
Goldman Sachs remains bullish on copper prices, citing an underlying shortfall as a significant factor. The situation in China is acute, with port inventories dropping by 300,000 tons since the beginning of this year and semi-finished product stockpiles declining by 12% year-on-year. Amidst a backdrop of healthy end-user demand and constrained supply, Goldman anticipates a more definitive reduction in electrolytic copper stockpiles by the end of the second quarter, accelerating into the latter half of the year. They forecast a target price of $12,000 per ton by year’s end, suggesting nearly a 20% upside from current levels.
Market analysis has consistently indicated a strong correlation between copper price movements and global PMI trends. Since October 2023, the global manufacturing PMI has shown signs of revival, suggesting a phase of economic recovery bolstered by various stimulus measures initiated by China. This recovery is further emphasized by copper’s status as a leading indicator of economic activity in China, which accounted for a staggering 51.2% of global copper consumption last year. The surge in copper prices reflects the expectations of recovery within the Chinese economy due to the series of stimulating policies being launched.