The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge. Visit them at www.monex.com to learn how they can help you with your precious metals investment needs.
Markets have been extremely volatile in recent weeks, and this is expected to continue as the year progresses. There is a great deal of uncertainty in the markets regarding the direction of the global economy as well as the political landscape; this uncertainty and confusion is likely to see an uptick in the coming months.
On the economic side, the data have been mixed with some data suggesting ongoing strength while other data suggesting a loss in economic growth momentum. August was a strong example of such mixed data, where the July U.S. jobs report came in weaker than expected and was followed by other data like retail sales and inflation that suggested healthy economic conditions. Such a stream of seemingly conflicting data is expected to continue, which in turn will extend the current tendency of financial market sentiments flipping and flopping with every new data point.
The Fed gave its clearest signal yet, at the Jackson Hole Summit, of an interest rate cut at its September meeting. While this provides some clarity to the markets, there is now confusion over how many times the Fed will cut rates. Meanwhile, the Fed’s August 2024 The Beige Book outlined signs of weakening economic activity across a wide swath of the United States. U.S. employment data for August also suggested an ongoing weakening in economic conditions.
Economic uncertainty is not tied only to central bank monetary policy around the world but also to supply constraints relative to demand for goods and services, slowing demand, and political uncertainty, as stated several times in previous CPM reports. The U.S. presidential election will be held on 5 November and given the size of the U.S. economy, uncertainty around the election’s outcome is sure to keep markets unsettled in the interim. Who wins the election will have important implications for various precious metals, whether it be trade restrictions and its impact on inflation or changes in green energy policies, which could positively or negatively affect fabrication demand for silver, platinum, and palladium, depending on what the policies look like under the next administration.
In addition to this election related uncertainty, is the uncertainty, as mentioned before, regarding the Fed’s interest rate trajectory. Historically, the Fed has cut rates at least three times when it has embarked on a loosening cycle. That does not necessarily mean that is the number of times they will cut this time around. Additionally, it is not only about the number of times they cut rates but also about the timing of such cuts and whether they may cut more than their typical 25 basis points during any one of the meetings. The expectations of all these factors will keep changing as new data become available. If the data remain mixed, it could add to volatility in the markets, as has been the case of late. If the data suggest a net positive economic picture, gold and silver could see some reduction in their safe haven appeal, with the opposite being true if economic data projects a net negative economic image.
The reality is that the U.S. economy is at that vertex where inflation still is unacceptably high but economic expansion is maturing, slowing, somewhat – enough to be worrisome to policy makers, companies, consumers, and investors.
Thus, the Fed finds itself at a crossroads, an intersection, with two economic vehicles – real growth and inflation – competing for the Fed’s attention.
CPM has repeatedly stated two key points about interest rates.
Independent of economic conditions, political risk will continue to be a supportive factor. It already has played the primary role in driving gold prices to fresh record levels over the past few years and is expected to remain a supportive factor going forward. While the U.S. election and its outcome are important contributing factors to this political risk premium, the political risk is not limited to the United States but is a widespread issue globally, both on a domestic level as well as internationally.
Another important political risk that has important negative implications for economic growth is China. Some of the headwinds that China is faced with can be attributed to political issues. China, which is the second-largest economy, has seen its economic growth rates slide in recent years and economic growth is expected to settle in at a lower level due to long-term political and economic divisions both within the country and internationally. China has played an important role in offsetting weakness in advanced economy growth during the most recent two recessions of 2009 and 2020. During these years when Advanced Economy growth had turned negative, China had continued to post growth. In 2009, Advanced Economy growth declined 3.36% but China’s economy grew 9.45%. In 2020, Advanced Economy growth declined by 3.94% while China’s economy continued to grow 2.2%. While Chinese economic growth was down strongly in 2020, standing at around 37% of what it was in 2019 it still was growth versus the decline in advanced economy growth during that year. Going forward Chinese economic growth may not be able to provide the sort of offsets that it has in past recessions, which could cause global recessions to be somewhat deeper.
Turning our attention back to interest rates, these are expected to be lowered in the coming months. That said, they are unlikely to be brought back down to the levels seen between the Great Recession and the covid pandemic. There is an elevated possibility of something breaking in the financial system when rates are higher, especially, when so much of the global economy is dependent on debt.
The Institute of International Finance (IIF) reported that global debt levels reached a fresh record high of $313 trillion in 2023. And while developed markets accounted for a majority of the increase, developing markets too saw increases with debt to gross domestic product (GDP) ratios in developing markets reaching record high levels. At $313 trillion, the global debt stood at 298% of global GDP.
All of these political and economic issues remain supportive of precious metals, especially gold, but also to some extent silver. Gold has already broken several records this year and its uptrend remains intact.
Silver has risen, too, but its performance has lagged that of gold. The ongoing stale bull liquidation in silver, seem to be playing out, which is expected to prevent silver prices from rising in tandem with gold at this time. That said, silver prices should have a breakout moment at some time in the next few quarters given the expectation of ongoing strength in gold prices.
For platinum and palladium, economic weakness is generally bad, while the strength in gold and silver can offer some support to these metals, in general, weakness in fabrication demand (due to economic weakness) would trump strength in gold and silver.
The State Of The World
Seperately, it is worth noting the difference in the way gold and bitcoin have performed during the recent market turmoil. On 5 August bitcoin dropped to its lowest level since February 2024 and was essentially in a falling trend throughout July as market turbulence rose. Gold also softened on 5 August, but had only fallen back to levels it was at during the end of July 2024. Additionally gold rose strongly during August and had reached a fresh record high on 20 August. The point of this comparison is that gold has repeatedly shown the market that it is a true safe haven asset and bitcoin has repeatedly done the opposite. While bitcoin and other cryptocurrencies may have their place and use within financial markets it is time to acknowdge that bitcoin is not a replacement or a better option as a safe haven asset than gold in times of market stress.
Markets In Summary
From the last week of July through the last week of August, gold prices were in a rising trend. Prices broke several record highs during this period. Prices have been moving sideways since gold reached its last record intraday high on 20 August of $2,546.80 (basis the nearby active October contract) and $2,570.40 (basis the forward active December contract). While prices have not been able to break past these record levels, they have been consolidating near these record levels. The average for gold prices basis the December contract (which has been accounting for around 80% of total open interest) between 20 August and 4 September was $2,539.29.
Prices could swing both ways in the coming months. If economic data suggests that the economy is doing ok, some of this risk premium may come off the gold price. That said, gold prices are not expected to weaken sharply anytime soon and the risk to the upside is greater than that to the downside. Based on this expectation, any softness in gold prices should be treated as a buying opportunity. Furthermore, at the time of writing this report, U.S. labor data for August was released, which suggested ongoing softness in labor conditions. This further bolsters the probability of higher gold prices in the next few months. If there is broad-based anxiety in the markets, gold prices could soften, possibly toward $2,400 or even $2,350, but a decline below these levels is unlikely. Also, if gold prices slide to these lower levels, they are unlikely to last there very long given the ongoing political risks and ongoing concerns of future economic softness.
Political risk is one of the primary factors expected to support gold prices even if economic conditions do not paint a dire picture. What happens in politics is nearly impossible to predict, which is partly or some would say mainly the reason why gold prices have been rising to record highs over the past several years.
On the other hand, if economic data shows ongoing weakness gold prices will rise, further supported by the political issues. This combination of factors could propel prices to reach fresh record levels.
Official Transactions
Central banks have been net buyers of 3.6 million ounces of gold during the first seven months of 2024. That said, monthly data on net central bank purchases paints a different picture. For three consecutive months, starting in May 2024, central banks have been net sellers of gold. While gross sales by central banks have not risen during this period, gross purchases by these entities have declined. A big part of the reason, why gross purchases have slid lower is the People’s Bank of China (PBOC), which has stopped making purchases since May 2024. The PBOC had added 930,000 ounces of gold to its holdings during the first four months of this year. The removal of this large (despite this being a reduced amount of monthly purchases compared to those seen in 2023) and consistent buyer has played an important role in central bank activity turning net negative during the May through July 2024 period.
Furthermore, during this three-month period, the Russian central bank has been a seller. The Russian central bank has been an active buyer and seller since the war with Ukraine began in 2022. Other central banks that have been sellers in this high price environment were central banks of Kazakhstan and the Philippines. It is not uncommon to see central banks pull back on purchases when prices rise as seems to be the case with the PBOC or for central banks to sell in the high price environment as has been seen in the case of Kazakhstan and the Philippines (Russia has been selling to take advantage of the high price, but its buying and selling activity in recent years is less likely to be tied only to the price of gold).
It is not uncommon for central banks to pull back on purchases or even sell when gold prices rise. Central banks have shown a tendency to be price sensitive. It should be noted though that despite gold prices reaching record high levels in both May and July and hovering near record levels in June, there were central banks that were making purchases and excluding Russia the sales were fairly limited. This shows us that central banks are still very much interested in gold and any softness or stability in prices is likely to pull these entities back into the market.
While silver prices rose over the course of August, their price performance continued to lag that of gold. Not only are silver prices nowhere near their record high levels, while gold prices have been making fresh record highs, but silver prices also have been struggling to break above or sustain any break above the $30 level.
One of the primary reasons for silver’s lackluster price performance has been ongoing stale bull liquidation, which is the selling of silver bought by investors in past years in anticipation of silver prices reaching fresh record high levels. There are several fundamental reasons for investors to be adding silver to their portfolio ranging from the political and economic reasons that are driving gold investment demand but also the expected increase in demand for silver from the solar panel industry in the next several years.
While platinum prices rose during the first three weeks of August, the metal’s prices has been in a declining trend since the middle of May 2024. This declining trend reasserted itself during the last week of August and into the first few days of September. While platinum does benefit to some extent from strength in the gold price, its supply and fabrication demand fundamentals have a more pronounced effect on the metal’s price.
Based on this the platinum price is likely to come under further pressure if markets expect economic conditions around the world to weaken. Weaker global economic conditions would weigh on passenger vehicle demand but also on commercial vehicle demand, which is extremely important to platinum fabrication demand. Softer economic conditions would also hurt platinum jewelry demand. Jewelry is a discretionary purchase and one of the first to be cut during weaker economic times. In addition to possibly weaker economic conditions going forward and the negative consequence of that on platinum fabrication demand, there also have not been any supply side interruptions that would help to drive platinum prices higher. South Africa’s electricity supply remains an issue, but it has not resulted in any lost supply in the recent past.
Platinum prices could see bouts of strength, but unless there is an improvement in economic sentiment or an actual supply disruption, platinum prices are likely to trend lower. Over the next few months prices could retest the $880 level, with prices periodically rising toward $920 or $950.
The declining trend in palladium remains intact. Palladium prices did rise in August, alongside other markets, but they were making lower highs than they did in the preceding months of this year. In early August, when all markets declined in response to the weakness in the U.S. jobs market, palladium prices fell strongly reaching their lowest level since June 2017. This weakness was the outcome of both the broad market movements as well as somewhat weak palladium market fundamentals.
Palladium prices are likely to face an even more challenging environment going forward, if market anxiety about an economic slowdown rises. Palladium fabrication demand comes primarily from the passenger vehicle sector and consumers will pull back on making purchases of large ticket items like cars. Another important source of palladium demand is electronics, and there has been some strength coming from this source during 2024 largely due to weakness over the past two years, but consumers and business will also cull this expense if economic conditions start to deteriorate. Any concerns of an economic slowdown or an actual economic slowdown will hurt palladium prices in the coming months.
There are some factors that could provide support to palladium prices in the next few months, while these factors are expected to be supportive, they are not necessarily expected to help drive palladium prices higher, at least not in any meaningful way. These factors include a slowdown in electric vehicle demand, an ongoing purchase of large vehicles in the U.S., and the typical increase in seasonal demand from the auto sector during the fall and winter.
Palladium prices are expected to linger for the most part, between the $880 and $980 level during the remainder of the year, with the potential for prices to test $820 or even $800.
After a volatile first half of 2026, CPM Group examines the outlook for gold, silver, platinum, and palladium—and why precious metals remain important portfolio anchors in a shifting economic and political landscape.
The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge.
The below report was created for Monex Precious Metals. We would like to thank Monex for making this CPM Group report available free of charge.
