The beginning of the year was of crypto-assets and actions in the field of AI, but now, it seems that the markets have rediscovered precious metals, Claudiu Cazacu, strategy consultant at XTB Romania, a trading and investment company on international scholarships.
Although Bitcoin started the year strong, carving broad paths to all-time highs after a 50.1% advance through April 3.
Subsequently, the currency slowed down so much that it gave way to gold as the leader of the race.
In the last month, Bitcoin’s advance is 5%, compared to gold’s 9.7%.
Why did the price of gold rise?
As of the morning of April 3, its year-to-date advance is 10.7% and futures for December delivery are nearly $100/ounce above the spot price, a sign of bullish investor expectations, shows Claudiu Cazacu.
The price even rose in some sessions where US Treasury yields rose. Speculative appetite is, in the short term, relatively high, and this does not rule out temporary vulnerabilities.
Alignment of macro and geopolitical risk factors
The alignment of macro and geopolitical risk factors keeps, however, in the distant horizon, the interest of investors, and not just speculators, for the most famous precious metal.
The precious metal has engaged in a series of historical highs, the evolution being, at the same time, a signal of changes in attitude for fundamental reasons and an indicator of a state of mind, Claudiu Cazacu says.
There are various economic arguments for gold’s appreciation, but the breaking of some records has also attracted increasing speculative interest from traders who detect the likelihood of rapid moves.
The geopolitical scene is one of the reasons for the acceleration, with attention divided between Ukraine, the Middle East and Taiwan. Meanwhile, the attack on the Iranian embassy in Damascus prompted an “upward” reassessment of the risk of conflict with Iran.
Although US economic data is relatively upbeat, with better-than-expected growth in orders and the ISM manufacturing indicator, indicators in the inflation and consumption areas are lining up to allow for three interest rate cuts by the Fed this year.
The lower the interest rates, the less penalized is holding gold, compared to cash placed in banks.
Brent crude rose to an all-time high
On the other hand, Brent oil rose to its highest level since last November. It collected a 17.5% advance this year.
If the trend does not prove to be transitory, the process of rate cuts – which both gold traders and equity investors are currently banking on – may be slower than currently expected.
A risk to oil also comes from deteriorating relations between Iran and Saudi Arabia, while Mexico announced a cut in exports by 0.4 million barrels per day to support local refineries.
The synchronized movement of gold and oil confirms the complicated geopolitical landscape. Central bank communications may continue to refer to an interest rate path that ultimately depends on data. So more volatile and less stimulating than investors would like to see at present.
China, central to setting the price of gold
Central to setting the price of gold is China. According to Franco-Nevada’s Pierre Lassonde, it takes such a large share of the annual production that it decides the price.
The appetite for gold purchases by some central banks, especially that of China, was one of the drivers of the upward trend. China’s appetite reached 2,235 tonnes after buying 225 tonnes last year.
At the same time, a whopping 271 tons were withdrawn from Shanghai Stock Exchange warehouses in January. This move could show effervescent local demand. Other voices quoted by Euronews suggest shipments of gold by specialist operators, flowing from the West to the East. Diversification of central bank reserves is doubled by individual appetite for gold in emerging countries.
Silver is up 10.4% in 2024
For its part, silver is up 10.4% this year, but is a long way from all-time highs. Its profile is different, having a much stronger industrial use. According to the Silver Institute, record demand of 690 million ounces is expected in 2024, up 4% from last year’s figures. This is due to the need for solar energy and the production of electric vehicles.
Silver price movements tend to be occasionally “violent”, but there can be long waiting periods in between.
A TD Securities analysis, however, describes a structural supply shortage, with too little investment in new mines. This could be seen in a reset of market perceptions over the next 1-2 years.
Tags: price gold rise specialists
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