Gold, Silver, Copper: Is the Rally Over?

Carolane De Palmas
Published: May 28, 2024, 08:32 GMT+00:00

Gold, Silver, and Copper have been the stars of the commodities market in recent weeks, shattering records with every surge in investor interest. But this week, a lull has settled over the market.

Gold bullion. FX Empire

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Does this pause signal the end of the rally and a potential price correction? Or is it merely a temporary rest before these metals charge even higher? Let’s delve deeper to understand what’s driving these price movements and what the future might hold for these valuable commodities.

Gold Prices Retreat After Reaching All-Time High Last Week

Gold prices skyrocketed to a record-breaking $2,449.95 per ounce on May 20th, fueled by a potent cocktail of geopolitical tensions and renewed expectations of an imminent interest rate cut by the Federal Reserve. This surge came despite mixed signals from recent inflation data.

First, the Producer Price Index reached their highest year-over-year jump in over a year in April, hitting 2.2%. This follows a rise of 1.8% in March. The tricky part is that this increase in producer prices could eventually lead to higher consumer prices down the line, but this doesn’t yet seem to have occurred, as the Consumer Price Index (CPI) for April rose.

The CPI was up 0.3%, following increases of 0.4% in both March and February. From a year ago, consumer inflation climbed 3.4% in April from 3.5% in March according to the Bureau of Labor Statistics (BLS). However, this modest uptick has kindled hopes among investors that inflation may be resuming its downward trend at the beginning of the second quarter of 2024, on track to meet the Fed’s target of 2%.

Weaker-than-expected April retail sales data added fuel to the bets of an upcoming Fed move and Gold price rally. Following slightly downwardly revised gains of 0.6% in March, 0.9% in February, and a decline of 1.1% in January, April retail sales data came in weaker than expected by being flat. Stalling consumer spending in April, driven by high gas prices and a shift towards essential goods, suggested the Fed might take action to prevent an economic slowdown.

Gold Daily Chart – Source: ActivTrader (28/05/2024 before the European session opening)

Gold’s record-breaking rally hit a speed bump, shedding around 5% the following three days, as the Fed’s minutes showed FOMC officials more hawkish than previously anticipated, as they believe it might take longer to reach their 2% inflation target. The precious metal has clawed back some ground over the past two days, leaving investors to ponder whether the upward trend is truly over or if there’s still room for growth.

On Friday, another crucial inflation report could offer clearer direction for Gold prices. This report is the core personal consumption expenditures price index (PCE). As the Federal Reserve prioritises this PCE data when making interest rate decisions, a higher-than-expected reading could confirm the “high for long” rate environment, potentially dampening Gold prices. Conversely, a lower-than-expected PCE reading might suggest the Fed could cut interest rates, which could be bullish for Gold.

The outlook for Gold seems to be bearish over the short-term.

Silver Prices Not Far From their Highest Level Since 2013

Silver is stealing the spotlight as another precious metal experiencing a significant price surge in recent weeks. On May 20th, it reached a multi-year high of $32.491 per ounce, following a similar climb in gold prices.

While gold and Silver often move in tandem, Silver has historically lagged behind. However, the tide seems to be turning. Analysts are increasingly viewing Silver as a more attractive investment option due to several factors.

Firstly, Silver’s industrial applications beyond its traditional role as a precious metal are gaining recognition. Its use in a variety of sectors, including solar panels, electronics, and electric vehicles, is expected to grow significantly in the coming years. This industrial demand, coupled with its limited supply, could create a compelling argument for potential price appreciation.

Secondly, some analysts believe Silver may outperform gold due to its lower price point. This makes it a more accessible investment option for a wider range of investors, potentially leading to increased buying pressure.

Overall, the recent surge in Silver prices, combined with its strong industrial demand and affordability, suggests a shift in investor sentiment. Silver may be emerging as a serious contender for the title of “precious metal to watch” in the coming weeks and even years.

Silver Daily Chart – Source: ActivTrader (28/05/2024 before the European session opening)

Copper Prices Soar to Record Highs on Potential Supply Squeeze

On May 20th, Copper became the latest industrial metal to reach a historic high. Prices surpassed the $11,000 per tonne mark on the London Metal Exchange (LME) and $5 per pound on the CME Group.

The surge in Copper prices can be attributed to two key factors.

Firstly, concerns about a potential supply squeeze are mounting. The International Copper Study Group (ICSG) has recently revised its supply forecasts downward, indicating a tighter market than previously anticipated. This suggests that Copper production may not be able to keep pace with rising demand.

Secondly, demand for Copper is expected to increase in the coming years. Copper’s role as a crucial component in many industries, particularly those focused on renewable energy and electric vehicles, positions it for strong growth. As these sectors expand, the demand for Copper will likely outstrip current production levels, further pressuring prices upward.

Copper prices are likely to face some pressure in the coming months. However, the overall trend could remain positive depending on two key factors. Copper prices are likely to be pressured over the next few months. If the Fed eases interest rates, it could stimulate economic activity and further boost demand for copper. A strong rebound in global manufacturing would also put upward pressure on copper prices.

Copper Daily Chart – Source: ActivTrader (28/05/2024 before the European session opening)


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About the Author

Carolane graduated with a Masters in Corporate Finance & Financial Markets and got the AMF Certification (Financial Markets Regulator in France). Afterward, she became an independent trader, investing mostly in European and American stocks/indices.

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