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Gold and copper are breaking records. Silver is at an 11-year high. But the narratives vary.
The rise in gold and copper futures Friday to their highest settlements on record and silver’s rally to an 11-year high share a common theme: recent weakness in the U.S. dollar. But that’s not the only reason prices for these metals have rallied.
“A rising tide lifts all boats,” John Caruso, senior market strategist at RJO Futures, told MarketWatch on Friday.
“The common theme is electrification needs and the [U.S.] government’s deficit spending at 6% of GDP,” he said. “We’re running wartime- [or] recession-style deficits,” while experiencing neither, and “metals are taking notice,” he said.
Copper and silver make great conductors to transmit electricity, while gold tends to rise as U.S. debt increases.
On Friday, gold for June delivery climbed $31.90, or 1.3%, to end at $2,417.40 an ounce on Comex to reach a fresh record-high settlement, according to Dow Jones Market Data.
July silver climbed $1.38, or 4.6%, to settle at $31.26 an ounce, for the highest finish since Feb. 8, 2013.
Copper futures, meanwhile, saw its July contract tack on 17 cents, or 3.6%, to finish at $5.05 a pound Friday, reaching a fresh all-time settlement high.
Gold, silver and copper are all experiencing notable gains from “economic uncertainty boosting demand for safe-haven assets, supply-chain disruptions impacting availability, and increased industrial demand, particularly for green technologies,” said Adam Koos, president at Libertas Wealth Management Group. And “despite differing specifics for each metal, the overarching theme here is a reaction to global economic and market conditions.”
“While it’s true that gold and silver often rise with a weaker dollar, their recent climbs can also be attributed to broader economic concerns and investor demand for diversification,” he told MarketWatch.
The dollar’s mixed performance to date in 2024 “adds complexity, but the key driver remains the underlying economic sentiment and supply-demand dynamics,” said Koos.
Gold, silver and the dollar
Dollar-denominated metals prices — gold and silver in particular — have found more recent support from weakness in the U.S. dollar, analysts have said.
The federal government’s running a $1.5 trillion deficit is weakening the U.S. dollar and strengthening precious metals on a relative basis, said David Miller, chief investment officer and senior portfolio manager at Catalyst Funds.
The ICE U.S. Dollar Index is trading 0.8% lower for the week, and it’s down 1.7% this month.
Miller said the the drivers of the gold and silver rally are a “combination of constrained mining supply and inflation pressure from elevated CPI prints [exceeding] the Federal Reserve’s 2% target.”
The April report on consumer prices released Wednesday showed inflation rising at a 3.4% pace in the past year, down slightly from 3.5% in the prior month, according to government figures. The core CPI climbed 3.6% in the 12 months ended in April, down from 3.8% in the prior month.
Both of those inflation readings remain well above the Fed’s goal of 2% annual inflation. Traditionally, gold is seen as a hedge against inflation.
“Gold and silver continue to confound and astound analysts, most of whom expected the recent pause in the rally to transform into a significant price correction,” said Brien Lundin, editor of Gold Newsletter. “Instead, the metals are, as of now, continuing to gain upside momentum.”
A key characteristic in this move is that gold is actually moving higher alongside some strength in the U.S. dollar and rising Treasury yields, he told MarketWatch.
Though trading lower to date in May, the ICE U.S. Dollar Index has climbed overall in 2024, up 3.1% as of Friday afternoon, while 10-year Treasury yields
have climbed around half a percentage point this year.
Strength in the dollar tends to raise the opportunity cost for investors considering dollar-priced gold as an option versus other perceived havens. Higher yields, meanwhile, usually weigh on prospects for gold against government bonds.
However, the common factor in the gains for gold, silver and the dollar is a “safe haven” aspect, said Lundin. “In my view, this is an indication that global investors view current inflation rates, debt loads and interest rates as mutually incompatible.”
Tight supplies boost copper
Copper, meanwhile, isn’t considered a precious metal as gold and silver are, but, as an industrial metal, it has benefited from expectations of growing demand.
“Tighter global supplies, better world economic growth, smelter issues in China, as well as rampant market speculation, including a purported ‘short squeeze’ in Comex copper futures at present, are all driving the red industrial metal’s price higher,” wrote Jim Wyckoff, senior market analyst at Kitco.com, in market commentary this week.
Joe Maher, assistant economist at Capital Economics, said the outlook for copper’s supply-and-demand fundamentals this year “certainly justify elevated prices.”
“Copper’s substantial use in electric vehicles and renewable-energy installations means that its demand will be strong as the green transition gathers pace,” he said. “What’s more, signs of a possible supply crunch have emerged.”
Still, Maher said those factors don’t really explain copper’s year-to-date 20%-plus price climb, and Capital Economics has seen ”subdued” demand for copper in China and the U.S.
All told, while the combination of strong demand and weak supply will probably help to support copper prices later this year, Capital Economics still expects prices to fall by about 10% by year-end “as some of the market exuberance fades,” he said.
More gains to come?
All told, while the current momentum for gold, silver and copper “suggests potential for continued gains, the recent run-up in price also increases the risk of a continued short-term corrections,” said Libertas Wealth Management’s Koos.
“Whether that correction is going to take place over price, time, or not-at-all remains to be seen,” he said. “However, long-term trends will depend on the evolving economic landscape, monetary policy, and industrial demand, particularly from sectors like renewable energy and technology.”
At the end of the day, Koos said, he feels that “the future for gold is bright, mainly due to the fact that it experienced a strong, multiyear breakout, the current pullback has held firm thus far.”
‘ “The trend is your friend, until the end,” and I don’t see that an “end” is anywhere imminent at the current time.’ — Adam Koos, Libertas Wealth Management Group
He also said he does not believe inflation, interest rates and the U.S. dollar are “swimming in a synchronized fashion that would put big, downside pressure on prices.”
To sum it up, for now, said Koos, quoting a market axiom, “ ‘The trend is your friend, until the end,’ and I don’t see that an ‘end’ is anywhere imminent at the current time.”
https://www.msn.com/en-us/money/mark...ry/ar-BB1mAmlv
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