Precious Metals Weekly Round-up: Gold Steady but Still Going Strong

Gold was softer on Friday (August 30) as both the US dollar and equities ticked up during the morning trading session.

Despite the slight slide in the market, ongoing concerns surrounding the economy and a potential trade war between the US and China kept the yellow metal on track for its fourth consecutive monthly rise.

“The trade war rhetoric has been toned down somewhat, which has lifted stocks and bond yields, and attracted some profit taking in gold,” Saxo Bank commodity strategist Ole Hansen said, adding a stronger greenback was also pressuring the precious metal.

“However, even though we may see an improvement on the trade front, which is doubtful, economic activity is still slowing down; that cannot turn around overnight. So, the underlying support from lower bond yields is still there,” he added.

Earlier in the week, gold surged through a more than six year peak, climbing over US$1,550 per ounce as concerned investors sought safe haven refuge from heightened US-China trade tensions.

The situation between the US and China has been grabbing the attention of market participants for over a year now, triggering concerns around a global slowdown.

Speaking about gold’s positive price move on Monday (August 26), Brien Lundin, editor of Gold Newsletter, told INN, “Right now, the primary drivers for gold have been the US-China trade dispute and the explosion in negative-yielding bonds worldwide.”

“There’s also a strong undercurrent of demand for gold based on the issues behind that explosion in negative yields. In short, the global economy is now completely dependent upon not only easy money, but ever-easier money,” he added. “Not only that, but a decade of exorbitant debt creation has ballooned the US federal debt to levels that will no longer allow for higher rates, much less anything approaching historically normal rates.”

Looking ahead, the US Federal Reserve and the European Central bank are expected to cut rates next month in order to stimulate the economy. If another cut takes place in September, it is likely that interest rates will be decreased by a 25 basis-point rate.

“The prospect of ultra-low to negative real rates for as far as the eye can see justifies much higher gold prices. Add in the political and economic uncertainties, including the potential for a US recession, and I think gold will breach US$1,600 before the end of the year,” Lundin added.

As of 9:55 a.m. EDT on Friday, gold was trading at US$1,528.50.

Silver managed to continue its rally on Friday, holding strong above the US$18 per ounce level. Much like gold, the white metal is being supported by interest from investors thanks to concerns surrounding the state of the US economy and ongoing geopolitical issues.

Silver broke the US$18 level for the first time since 2016 on Tuesday (August 27), which many market watchers believed was largely due to gold’s substantial swing upward.

“In my opinion, the main reasons for silver’s appreciation in price are the same as gold; however, because silver has a component of industrial demand, its market dynamics are much different,” Brian Leni, founder of Junior Stock Review, told INN. “The biggest difference lays in the silver market’s volatility. Historically, silver outperforms both to the upside and the downside depending on the direction of the market.”

In terms of where the silver price may go from here, Lundin believes that investors won’t have to wait long for it to hit US$20.

“Silver is being driven by gold, which is an encouraging sign in that this fact confirms that one of the primary drivers of the gold rally is concern over the future values of fiat currencies,” he said. “At this rate, it won’t be long before the US$20 level starts to act like a magnet, and I would not be surprised to see silver breach that benchmark before November.”

As of 10:15 a.m. EDT on Friday, silver was changing hands at US$18.34.

As for the other precious metals, platinum made gains, finally breaking through the US$900 per ounce level, climbing a more than one-year high and heading for its best month since January of last year.

While analysts at FocusEconomics see the price of the metal rising slightly from its current level, they believe it will continues to be muted and trail behind its sister metal palladium.

Georgette Boele, precious metals strategist at ABN AMRO (AMS:ABN), believes that platinum’s recent rally is a reaction to gold and silver’s impressive price inclines.

“We think investors have realised that the risk of a correction in gold prices is increasing, and therefore they have opted for the relatively cheap alternative: silver. Since silver has already caught up, platinum was the only cheap alternative left in precious metals that would probably profit if gold prices continue to rally, but at the same time with limited downside given prices were (and still are) at relatively low levels,” she said.

“In short, platinum is not the new safe haven, but investors feel it is a cheap alternative to gold with probably less downside risks.”

As of 10:45 a.m. EDT on Friday, the metal was trading at US$936.

For its part, palladium made huge gains this week, ticking up over 5 percent as it went head-to-head with gold on Friday for the highest trading precious metal title.

After a relatively lacklustre August, the metals made waves at the end of the trading week as it hit a one month high.

As of 11:00 a.m. EDT, palladium was trading at US$1,526 per ounce.

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