The first half of 2024 was good for precious metals, particularly gold and silver. Gold prices were up 13% at the end of June 2024 from the end of 2023 and silver prices were up 21% during the same period. Platinum prices have essentially been flat during the first half of 2024, supported by strength in gold and silver as well as concerns about supply. However, soft platinum fabrication demand expectations for this year as well as into the medium term have been acting as headwinds for platinum prices. The sentiment toward palladium remains negative, with prices for the metal down around 12% during the first six months of this year.

The strength in gold and silver can be explained by the numerous risks to the global economy and financial system from monetary policy, fiscal policy, and political risk, for which these metals are used as hedges in investor portfolios.

On the economic side, inflation has been a centerpiece over the past few years. The rate of inflation growth has decelerated from the multi-decade highs that were seen in 2022 but still stands above targets set by various central banks. At the start of 2024 inflation data raised concerns that inflation was making a comeback. More recently released data is suggesting that inflation is back on its downward trajectory.

Mixed inflation, employment, and other economic data limit the Fed’s confidence in the downward trajectory, however. The Fed has held the Federal Funds target range between 5.25% and 5.50% since July 2023. The Fed’s most recent projections show a 25 basis point cut to rates later this year. Meanwhile, markets expect the Fed to cut twice later this year. There is a risk that these cuts do not occur. A healthy jobs market gives that Fed some flexibility with holding rates at present levels and ensuring that it completely quells the risk of inflation, especially given the signs that inflation has become more sticky in recent months.

While a lot of the risks in financial markets are already priced into precious metals, one factor that has not been fully priced in is the outcomes of various elections still to come especially in Europe and the U.S. The outcomes of these elections in the U.S. and Europe, which could bring in governments with protectionist and anti-immigrant agendas, complicate decision making for central banks. If more protectionist governments were to come to power, there is a renewed risk of inflation rising in response to the imposition of trade tariffs. Possible anti-immigrant policies could also slow economic growth, forcing the hand of central banks to lower rates at a time when inflation has not been fully controlled. The possibility of slower growth and higher inflation bode well for precious metals investments, especially gold and silver.

Precious metals prices are expected to strengthen during the second half of this year. While prices are projected to move sideways to slightly lower in July and August, beyond that precious metals prices, particularly gold and silver, should be expected to rise. While the labor market still is strong, there are other signs in the economic data that suggest a slowing economy, weighed down by current interest rates. This weakness could continue to gather over the next several months, which coupled with political risk should bode well for gold and silver prices. Both metals are expected to experience a double-digit increase in annual average prices during 2024. A slowdown in global vehicle demand this year, meanwhile, is expected to weigh on platinum and palladium prices.

Seasonal Weakness: This Time Could Be Different

Precious metals markets typically enter a period of seasonal weakness during the summer. Manufacturers, jewelers, and investors often reduce their buying of precious metals during these months, leading to some softening of prices. Often the price weakness maybe more subtle, in the form of a headwind to precious metals prices rising rather than an outright decline, at least not any meaningful decline.

Seasonal patterns are easily and often overridden by events, either in the markets themselves or more often in the economic, financial, and political environments that condition trends in fabrication demand and investment demand.

CPM expects seasonal demand patterns may becalm precious metals prices to some small extent this year, from June through August, but that the panoply of political issues confronting the United States and the world, along with slowing economic growth in most countries and fiscal policy constraints seem likely to create an environment in the final four months of 2024 and into 2025 in which investors sharply increase their demand for gold and silver as safer havens for their wealth and protection against these hostile political, social, and economic conditions, pushing the prices of both metals sharply higher. New record highs in gold seem assured in such an environment, and new record intraday and annual average silver prices also appear to be well within reach.

This expectation of CPM Group sets near-term precious metals price forecasts to move in a sideways fashion at elevated levels, at least in the case of gold and silver, rather than some sharp correction in prices. Platinum and palladium prices too are expected to move sideways, but their price levels cannot be referred to as elevated, especially compared to where they have been in recent years.

As can be seen in seasonality charts for all the four metals, there is a distinct seasonal pattern across these markets. Typically, there is price strength during the first five months of the year followed by a weakness in prices between June and August. Prices generally soften as industrial users, jewelers, and investors take vacations and reduce their demand. While the strength during the first five months and the pace of recovery during the last four months differs among the metals, the weakness during June through August is quite consistent across the metals. For this reason, it is quite likely that this seasonal weakness will play out this year as well. That said, it is likely to be less intense than what the seasonal charts may suggest. It is not unusual to have seasonal patterns overridden by events, by economic developments, political conditions, and fundamentals specific to individual markets.

This year could be one of those years when political and economic factors may override seasonality. As mentioned before, while seasonal weakness may not be completely eliminated it is expected to be less intense. There is a lot of political and economic uncertainty, which may keep investors interested in adding precious metals, especially gold and silver, to their portfolios as hedge against these risks.

While some price weakness is to be expected, CPM Group’s analysis suggests that investors are sufficiently concerned about future economic trends and a host of international political issues and domestic divisions in many countries around the world. Given these exogenous factors, CPM expects investors to continue to buy gold and silver and will take advantage of the current and any further dips over the next three months to add to their holdings. The mild price declines expected in the precious metals complex are not enough for longer-term investors to liquidate long positions. It may be enough to warrant short-term hedges, but the expectation is that any weakness may be limited this year.