Silver lining in commodity price movements

Silver was the best performing commodity last week, says Ole Sloth Hansen, Saxo Head of Commodity Strategy.

He says silver’s performance came after the semi-industrious metal on top of the tailwind from gold received an additional boost from industrial metal strength not least copper. The base metal recorded its highest close for the year amid ongoing supply worries and demand optimism in China in the coming months, especially if the government announces measures to support metals intensive sectors like property and infrastructure.

Hansen notes that while gold reached a fresh record, silver is yet to send a strong technical signal with another +5% move needed before challenging key resistance in the US$26 area.

ABC Bullion puts the silver spot price per troy ounce at A$37.28 as of 11 March 2024, just shy of a high of $43.31 seen in April 2011. Comparatively, in May 2003 the silver spot price was just $6.80.

According to Saxo’s Head of Commodity Strategy, the commodities sector has started March on a firm footing with broad gains supporting the best weekly performance since October.

“Copper, rangebound since mid-2022, and the past nine months within a relatively narrow US$3.50 to US$4 range, is showing signs of fresh strength, supported by dollar softness, supply tightness, and China demand optimism. The weekly chart points to a breakout that needs a move through US$4 to be confirmed.”

He says last week in commodities, however, belonged to precious metals – not least gold which was heading for its strongest two-week gain since July – in the process racing higher to reach a record high.

“Supported by a softer dollar and lower Treasury yields after Federal Reserve Chair Powell said the central bank is ‘not far’ from having the confidence needed to ease policy and that rate cuts can and will begin this year.

As mentioned, these remarks helped send the dollar broadly lower – and risk appetite broadly higher – not least the Japanese yen which got multiple boosts, which apart from a dovish Powell included a strong wage growth print which raised chances the Bank of Japan will finally exit the world’s last remaining negative-rates regime and hike rates, perhaps as soon as this month.”

Gold shift to consolidation

In Saxo’s latest weekly update, the fintech specialist that operates a multi-asset trading and investment business mentions how the gold market last month showed signs of strength. Yet it was trading flat on the month despite seeing US Treasury yields shot higher after US data strength earlier in the month had further delayed the expected timing of the first and depth of subsequent US rate cuts.

Towards the end of February, Saxo highlights how the yellow metal was “increasingly behaving like a coiled spring, wanting to trade higher despite yield headwinds, but held back by worries about continued data strength”.

At the end of 2023, Saxo forecasted that gold could reach US$2,300 in 2024.

Hansen says while the latest rally is in line with Saxo’s general view of the precious metal’s direction, “we have been left surprised by the timing of the run up to a fresh record”.

“Given the need for rate cuts to attract ETF investors back into gold we have been calling for patience regarding the timing of the next move higher. Without any participation from ETF investors who sold 9 tons this past week, the rally has primarily been driven by under-invested hedge funds forced back into the market as several key resistance levels got broken.

Underlying support has for months been provided by central banks, some of which are buying gold in order to reduce their exposure to the dollar, and continued strong demand from retail investors in Asia, most notably in China where stock market weakness and falling property prices are forcing the middle class to look elsewhere. In addition, we believe that heightened geopolitical tensions around the world have reduced the short-selling appetite, basically all strengthening gold’s current buy-on-dips credentials.

Without a notable pickup in demand from investors in ETFs to pick up the baton from hedge funds that will soon reach their desired level of exposure, gold may hit a plateau followed by a period of nervous trading as recent established longs may reduce exposure. Overall, we maintain our US$2,300 target with the technical picture potentially pointing to an even higher level around US$2,500.”

Mining.com.au will publish a full assessment of major commodities and their price movements over Q1 2024 including gold, base metals, battery metals, bulk minerals, and uranium once the quarter ends.

Write to Adam Orlando at Mining.com.au

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Written By Adam Orlando
Mining.com.au Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.