Key Points

  • The fear of missing out has created a strong buy-on-dip mentality among precious metal traders and investors
  • Silver is breaking higher with platinum showing signs of following
  • Today’s US inflation report - high or low - may not do much to alter the current bullish narrative

Gold continues to go from strength to strength, and despite an increasingly overbought market condition as seen through relative strength indicators, we are witnessing FOMO (fear of missing out) on clear display, driving the spot price to a fresh record high this week at USD 2,365. In dollar terms it has so far returned 14%, already exceeding last year’s 13% gain while gold’s ability to withstand the stronger dollar has seen even stronger year-to-date returns against most other currencies, examples being EUR (16%), AUD 17% and not least CHF and JPY, both up around 23%.

Some of the current drivers receiving a great deal of attention, are:

  • Fear of missing an ongoing rally creating a very strong buy-on-dip mentality, in the process reducing the risk of recent established longs being challenged.
  • Geopolitical risks related to Russia/Ukraine and the Middle East still playing a supporting role
  • Strong retail demand in China amid the desire to park money in a sector seen relatively immune to a struggling economy amid deepening property woes and volatile stocks leading to falling deposit rates.
  • Continued central bank demand amid geopolitical uncertainty and de-dollarization, and not least gold’s ability to offer a level of security and stability that other assets may not provide.
  • A softer dollar despite the recent yield rise, adding some support
  • In addition, the focus is changing from the negative impact of lower rate cut expectations towards support from a higher and more sticky inflation outlook
  • Silver trades up +16.5% so far this year, gaining some fresh momentum due to the general strength seen across other industrial metals, and not least the relative cheapness to gold that build up during the past few years when gold, as opposed to silver, enjoyed underlying demand/support from central banks.

With these developments in mind, today’s US inflation report may not do much to alter the current bullish narrative. Analysts are currently looking for the headline year-on-year CPI print to rise 0.2% to 3.4% with the core falling one-tenth to 3.7%. A higher-than-expected print may do little to reduce rate cut expectations below the two priced in for 2024, while at the same time support investment metals as inflation picks up. A lower number, meanwhile, will support rate cuts and with that, the prospect of lower funding cost, potentially attracting fresh demand from ETF investors who have been net sellers since 2022.

As gold continues to scale new heights, the attention is slowly turning to some of the other semi-precious investment metals, so far primarily silver, while the platinum-group metals continue to fall behind, thereby lifting their relative cheapness to record levels. The gold-silver ratio has fallen from above 90 ounces of silver to one ounce of gold last month to below 84, not far from the five-year average around 83. For the past three years, the ratio has been trading with an upward trending bias, which potentially could be broken on a sustained break below 82.50.

Platinum, meanwhile, has seen its discount to gold surge higher with the ratio hitting a record 2.5 on Monday before retracing the current 2.4 amid signs of technical buying starting to emerge. The platinum market is expected to see a widening deficit in 2024, but until we see inventories that built up in recent years being consumed, the market will likely struggle to attract much needed demand from investors in ETFs who have kept a near-unchanged holding around 2.9 million ounces since November, down from a record 4 million ounces in July 2021. Leveraged money managers in the futures market, held a neutral position in the week to April 2, but with technical outlook now improving we may finally see some buying action here as well.

Platinum has yet to turn a profit so far this year, thereby trailing gold by a considerable margin. From a technical standpoint, the price action has turned more friendly with the metal having gained more than 6% during the past week alone. As per the chart, the spot price probably needs to break above USD 1000 followed by USD 1040 before attracting additional momentum buying from leveraged accounts.

Source: Saxo

Silver, meanwhile, has also benefited from its relative cheapness to gold and not least the recent recovery among key industrial metals, where copper is supported by a tightening supply outlook and global growth optimism. The metal trades up by around 9% in the last week, after the break above USD 26 finally helped get the ball rolling, and while support has been established in the USD 27 area, the metal has yet to make a decisive break above USD 28 on route to the May 2021 high at USD 28.75.

Source: Saxo

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