What’s the opportunity for precious metals beyond the midpoint?

“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 antiimmigrant 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.”