Gold and silver hit record highs amid geopolitical tensions and Fed rate cuts

As geopolitical tensions continue to heighten, gold and silver prices are surging, compounded by weak American economic data and potential rate cuts by the Federal Reserve.

On Tuesday, gold hit a historic high of $2,657 dollars in a 1.1% gain on the day, before hitting another record high on Thursday of $2,685.58. So far this year, bullion has risen by nearly 30% and broken several records thanks to not only safe haven demand but also robust buying by central banks and U.S. rate cuts.

Independent analyst Ross Norman told CNBC: “Gold price strength is feeding on itself just now. That’s to say momentum is driving speculative flows despite a rising U.S. dollar and Treasury yields.”

Meanwhile, silver rose 5% to reach $32.22 on Tuesday. Its streak continued as the week went on, reaching its highest level in almost 12 years on Thursday when it hit $32.71.

Silver has rallied more than 36% so far in 2024 thanks to both its value as a safe-haven investment and its use in industrial applications. Its use in photovoltaic products such as solar panels has almost doubled over the previous year. It is already considered one of the year’s best-performing major commodities.

Some analysts expect to see silver continue its rally and reach as high as $37. For example, BOCI Head of Commodity Markets Amelia Xiao Fu said: “Silver is going to continue to rally over the coming quarters because of the consecutive rate cuts and as China’s stimulus could continue for some time.”

Silver traders have been waiting for these developments for a while, according to Saxo Bank Head of Commodity Strategy Ole Hansen, who added: “Continued gold strength combined with stable to higher industrial metal prices should see silver continue to outperform gold, with the gold/silver ratio falling back towards the 70 to 75 area, potentially driving a 10% outperformance in silver.”

Uncertainty over global economy driving demand for safe haven assets

It is clear that investors are increasingly seeking safe haven assets as the global economic outlook continues to be uncertain.

For example, economic data released earlier this week showed that American consumer sentiment is dropping. The CB Consumer Confidence Index fell well below its forecasted figure of 103.9. Its actual drop to 98.7 is a steep decline from the previous month’s 105.6. This movement is being blamed on the effect of inflation on depleting household budgets and spurring concerns about the overall economic outlook.

Manufacturing activity is also on a downward trend, with the Richmond Manufacturing Index dropping well below the expected -13 to hit -21. This represents a significant slowdown in industrial activity.

Another contributing factor is expectations about the U.S. Federal Reserve’s next moves. Right now, aggressive rate cuts are expected, with a total reduction of 125 basis points potentially being seen before the end of the year. This would weaken the American dollar, which would only further increase the appeal of assets such as gold and silver. Moreover, a weaker dollar makes precious metals cheaper for foreign buyers.

Precious metals gaining steam on news of Chinese stimulus package

Other metals have been following a similar trend to gold and silver, with platinum rising 2.2% to $1,010.47 and palladium gaining 1.1% to reach $1,049.50. Copper, meanwhile, has been rebounding to the $4.50 range after trending downward since reaching a high of $5.00 in June.

All precious metals have been surging this week following the news that China will be launching its biggest stimulus package since 2008 amid growing deflation concerns. Investors are largely speculating that this infusion of capital into the markets there will have the effect of increasing Chinese manufacturing and infrastructure spending.

Sources for this article include:

JPost.com

CNBC.com

JPost.com

Reuters.com