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Commodities

Commodities on Fire 馃敟

Dilin Wu
Research Strategist
21 May 2024
The commodities market is ablaze, with solid gains in gold, silver, copper, and platinum. This surge defies traditional market dynamics, showcasing the unique factors currently driving prices to new heights. As geopolitical tensions rise and inflation concerns persist, investors are flocking to precious metals as a safe haven, fueling unprecedented demand and price action.

Gold Defies Market Dynamics, Nearing Record Highs Amid Dollar Strength

In a surprising turn of events, gold has surged to new all-time highs this week, even as the Dollar Index slightly rebounded from last Thursday鈥檚 low. This rise in gold prices, which saw futures appreciating by as much as 6.5% and once touched $2,450, defies the traditional market dynamics where a more robust dollar typically pressures gold.

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This unusual trend highlights the intense safe-haven demand currently driving the market, fueled by central bank buying and escalating geopolitical tensions, particularly following Iran's unprecedented attack on Israel.

We are witnessing substantial buying activity from China. China's gold holdings as a percentage of total reserves are increasing as they reduce their US Treasury holdings and invest in gold.

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Silver and Platinum Join the Rally

The chase higher from various market players is also true for silver, which had its best week since August 2020, helped by a monster move of 6.2% on Friday. This surge took silver prices to their highest levels since February 2013. Platinum also participated with an impressive 8.9% weekly gain, while gold closed at a new high. A weekly close above the all-time intraday high at $ 2,450 could trigger a FOMO (Fear Of Missing Out) chase, driving prices even higher.

What鈥檚 Driving Gold Above $2,400?

The question of what exactly is driving gold above the $2,400 mark is frequently asked. Despite US real rates (US bonds adjusted for expected inflation) rising by 3 basis points on Friday鈥攁 typical headwind for gold鈥攇old rallied by 1.6% on the same day. This indicates that factors other than rates are driving gold flows. These include a broad-based rally in metals, central bank buying, increasing Chinese gold holdings relative to its international reserves, and a hedge against ballooning government deficits. It鈥檚 a complex scenario where multiple factors contribute to the price movement.

Trading gold short-term from a purely fundamental standpoint can be challenging. The best approach may be to remain adaptive to price action, align with the short-term trend, and react quickly when the market moves against you.

Gold gets the central focus - can we close above $2,450, and will we get an actual FOMO chase?

Copper Prices Surge to Record Highs

Copper prices hit record highs in Asian trade on Monday. Three-month copper futures on the London Metal Exchange rose 0.8% to $10,848.50 a ton, while one-month futures climbed 0.9% to $5.1370 a pound.

Copper ended Friday with a 4.2% increase, culminating in a weekly gain of 9.3%. The chart presents an exquisite visual of this upward trajectory for trend-followers and momentum traders.

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Optimism over lower interest rates and stimulus measures in China, the top copper importer, has spurred the rally. Supply concerns from reduced mining output and stricter sanctions on Russian exports also contributed. The global push for green energy and electrification is expected to increase copper demand further, adding to the bullish outlook.

China's stimulus measures, including easing property market restrictions and a massive 1 trillion yuan bond issuance, further bolstered copper prices.

For FX traders, this move in copper remains a huge tailwind for the CLP (Chilean peso), where USDCLP has fallen 9.4% since mid-April.

With these factors at play in the Copper market, the question remains: are we going to see new highs or a price correction?

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