Precious Metals Weekly Round-Up: Prices Fall on Rate Cut Talk

After hitting a seven year high of US$1,686.10 per ounce earlier this week, the price of gold retreated amid speculation that central banks will have to cut rates to bolster the economy and counter the effects of COVID-19.

Gold slid to its lowest point this week in pre-trading hours on Friday (February 28), when it was selling for US$1,619.50, but the currency metal is still on track to record its third straight month of gains.

The precious metals sector has benefited from the economic uncertainty presented by the novel respiratory virus, which has already claimed 2,869 lives and infected another 83,906 people globally.

According to economic reports, the coronavirus has already wiped out US$5 trillion in value from global markets, and that number is likely to grow as the impact continues to be felt moving into the second quarter of the calendar year.

“If infections continue to grow significantly into Q2 on a global basis and Chinese workers return to the factories at a very slow pace, the recovery will start later, more supply chains will be disrupted and impact on global growth will be more significant,” a report from Goldman Sachs (NYSE:GS) states.

The potential long-term impact to the global economy has prompted analysts to speculate that the US Federal Reserve could cut interest rates as soon as March when it meets.

“This virus is getting a lot more serious … People are worried there might be a need for some more stimulus measures, so that means lower (interest) rates,” John Sharma, an economist at National Australia Bank, told Reuters.

Despite this week’s gold price dip, Goldman Sachs is calling for US$1,800 gold within the next three months if the virus is not contained and markets continue to move into bear territory.

As of 10:58 a.m. EST on Friday, gold was trading for US$1,583.05.

Silver displayed more volatility this week than its sister metal, soaring to US$18.69 per ounce on Monday (February 24) before falling back 10.7 percent to US$16.89 as the markets opened on Friday.

Safe haven appeal hasn’t been as beneficial for silver as it has been for gold, which has garnered the most attention as a hedge. The white metal is also dealing with weakening industrial demand.

However, analysts at Raymond James see the silver price trending higher over the year, and have increased their outlook to US$20 in Q2, US$19.50 in Q3 and US$19 for the final quarter of the year.

Silver was selling for US$16.58 at 11:00 a.m. EST on Friday.

Like silver, platinum also saw a significant drop this week, falling by 10.4 percent from US$968 per ounce on Monday (February 24) to US$867 after markets opened on Friday.

The more than US$100 loss is the steepest decline the gray metal has seen since September 2011.

Similar to silver, platinum has been overshadowed by its platinum-group metal counterpart palladium, which continues to make record gains as demand continues to climb.

At 11:03 a.m. EST on Friday, platinum was changing hands for US$859.

Palladium also faced headwinds this session, dropping back 9 percent for its largest weekly loss in six months; the price fell from its new all-time high of US$2,770 per ounce early in the week to US$2,495 shortly after the start of the trading day.

Even though there has been recent pressure on the palladium price, the metal is still up almost 30 percent year-to-date.

In a weekly note, panelists for FocusEconomics pointed to the supply and demand disparity in the palladium sector as a driving factor behind the price growth.

“Tighter vehicle regulations in China and the EU’s shift from diesel to gasoline and hybrid vehicles — which use more palladium in their catalytic converters — have spurred demand,” it reads.

“At the same time, supply has failed to keep pace: The market has been in deficit for years, while the nature of palladium as a by-product makes it more difficult to raise output quickly.”

That said, FocusEconomics sees palladium coming off its more than year-long bull run by the end of 2020 with an average Q4 price of US$2,136.

“Palladium isn’t immune to risks. In the short term, vehicle manufacturers could begin to switch palladium for platinum in catalytic converters given platinum is extremely price competitive at present; in the long term, electric vehicles do not produce emissions and thus do not need catalytic converters.”

The value of palladium sat at US$2,447.50 as of 11:07 a.m. EST.

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