Precious Metals Weekly Round-Up: Gold Climbs on Global Growth Fears

Gold ticked up on Friday (October 4) thanks to increased concerns surrounding a possible downturn in global economic growth.

The yellow metal is also being supported by expectations of additional US interest rate cuts, which have increased in the past week.

“We’ve received more evidence that global growth is struggling. We most likely have a global manufacturing recession and there is a risk that this spills over into the services, which is why gold has recovered quite rapidly after that sell-off last week,” Carsten Menke, an analyst at Julius Baer (OTC Pink:JBARF,SWX:BAER), told Reuters.

“Fundamentals for gold are still positive, we have slowing global growth, lingering trade tensions and we see more rate cuts by the Fed. So this is an environment where gold should prosper and prices should be at US$1,575 towards the end of the year,” he added.

The precious metal rallied as investors reacted to US data showing that service sector activity slowed to a three year low last month, following the manufacturing sector, which is at its weakest level in a decade. Additionally, hiring by private employers continued to decrease in September.

Adding to gold’s appeal is the increased chance that there will be another interest rate cut before the year is over. On Thursday (October 3), two US Federal Reserve policymakers alluded to the fact that they are open to delivering another rate cut.

Richard Clarida, vice chairman of the American central bank, said, “(The central bank) will act as appropriate to sustain a low unemployment rate and solid growth and stable inflation.”

“Fed Chair Jerome Powell stated in July that this (rate cut) step was just an insurance against international risks and not the beginning of a new cycle, but in September it became clear it is a cycle, and now more (Federal Open Market Committee) members are being supportive to rate cuts,” said Peter Fertig, an analyst at Quantitative Commodity Research.

Market participants will now turn their focus to the US non-farm payrolls report, which is expected to be released on Friday at 12:30 p.m. EDT, for clarity on where the world’s biggest economy stands.

As of 10:13 a.m. EDT on Friday, gold was trading at US$1,503.

Silver did not respond to global economic concerns the way its sister metal gold did, instead putting on a relatively steady performance on Friday. The white metal remains outside of the US$18 per ounce level that it reached in the previous month.

However, a potential interest rate cut could give silver some renewed stamina, and there are still many industry insiders who believe that the metal is primed to make substantial gains.

EB Tucker, a director at Metalla Royalty & Streaming (TSXV:MTA,OTCQX:MTAFF), recently told the Investing News Network that he thinks silver will pass the US$20 mark before 2019 comes to a close.

“In our view, gold’s going to stabilize here at US$1,500, (and) silver will go from US$18 to US$20. And so we are focusing a lot of our capital and resources on silver, because that to us is the easiest trade right now. And I would be shocked if that doesn’t happen before American Thanksgiving, which is only about eight weeks away,” said Tucker, who also runs two publications at Casey Research.

He explained that, while he does see the white metal eventually rising to US$25, it’s important not to miss its increase to US$20. “I think in the short run if you miss that move in silver you’re missing a very easy way to make money,” he said.

As of 10:26 a.m. EDT on Friday, silver was changing hands at US$17.46.

As for the other precious metals, platinum lost more than 1 percent on Friday, falling below the US$900 per ounce level and experiencing its largest weekly decline since May.

Despite the decrease, the World Platinum Investment Council (WPIC) released a report last month that states platinum demand is expected to climb by 9 percent this year.

During the first half of 2019, a surge in exchange-traded fund (ETF) activity accounted for 855,000 ounces of investment demand. The WPIC expects demand to outpace supply, reducing the surplus of platinum from 375,000 ounces to 345,000 ounces.

“Today’s report shows continued investment demand growth, driven by investor recognition of platinum’s demand and price growth potential. This has been supported by uncertain capital markets that have seen inflows for most precious metals ETFs this year, of which platinum has been a standout beneficiary,” Paul Wilson, CEO of the WPIC, said at the time. “Institutional investment demand has had an unprecedented start this year with ETF buying of 720,000 ounces in H1’19.”

As of 10:41 a.m. EDT on Friday, platinum was trading at US$875.

Palladium was the most successful precious metal for the week, rising over 1 percent on Friday.

Looking ahead, panelists polled by FocusEconomics believe that, while prices will dip slightly, the metal will continue to be supported throughout the year.

“Prices will still be elevated by recent historical standards, aided by the ongoing supply deficit and a shift to cleaner vehicles, which should support demand. The evolution of the US-China trade spat, a potential faster-than-expected economic slowdown and the possible substitution for platinum in vehicles remain key factors to watch,” they said.

As of 10:44 a.m. EDT on Friday, palladium was trading at US$1,656.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.