Deficits in Silver, Base Metals Point to 2024 Market Moves

As trading kicks off in 2024, precious metals bulls have high hopes for price breakouts. So far in the early goings of the New Year, though, gold and silver markets are pulling back.

Since Tuesday's open here during this holiday-shortened week, gold prices are off 1.5% to trade at $2,054 per ounce. Silver shows a weekly loss of nearly $1 or 3.7% to come in at $23.24 an ounce. Platinum is down 4.2% to trade at $972. And finally, palladium checks in 8.5% lower, off about $100, for the week at $1,067 per ounce.

Looking back at 2023, gold was among the best-performing assets.

The yellow metal ended the year up over 13 percent.

So, how did gold stack up against other investment assets?

Pretty darn well.

According to analysis by the World Gold Council, gold outperformed emerging market stocks, U.S. bonds, the U.S. dollar, global treasuries, and commodities in general.

The only asset classes that performed better than gold were U.S. stocks and developed-market foreign stocks.

Gold charted this solid performance despite facing significant headwinds of a strong dollar and rising interest rates as the Federal Reserve tightened monetary policy throughout most of 2023.

The prospect of the Fed ending its interest rate hiking cycle and potentially cutting rates in 2024 helped gold rally through the last two months of the year.

The World Gold Council pinpointed three factors driving gold's solid performance in 2023 – strong central bank demand, robust retail demand, and increased geopolitical risk, especially in the last part of the year.

Meanwhile, metals markets are widely expected to get a boost from Fed rate cuts later this year. But the timing and magnitude of monetary easing by the Federal Reserve remains uncertain.

Investors who were hoping for a straightforward dovish commitment from policymakers didn't get what they wanted at the last policy meeting. Minutes from the FOMC's December gathering were released on Wednesday. They showed central bankers still weighing their options.

Although markets are pricing in multiple rate cuts this year, some officials are concerned that pivoting toward easing too soon could allow inflation to stay elevated above 2%.

Yahoo Finance Report: Officials believe during their December policy meeting that interest rates were likely at or near the peak for the current rate tightening cycle, and almost all participants felt that rates could end 2024 lower given progress on inflation. Now, even though almost all thought that rates could end the year lower, they stressed there's a lot of uncertainty around that. Many said that an easing in financial conditions beyond what was appropriate could make it more difficult for the Fed to reach their 2% goal. And ahead of these minutes, we saw a lot of divergence in opinions from several Fed officials after Fed Chair Powell made that dovish pivot, and we saw evidence of that in these minutes. Specifically, several said that the economy or inflation might evolve in a way that will require them to hold rates at the current level for longer than expected.

Worries that the Fed could hold rates steady for longer prompted selling in metals and as well as in stocks and bonds. For now, the selling is orderly and mild.

It's also not too surprising from a technical standpoint considering how steeply markets ran up in the fourth quarter of last year. They were due for a pullback.

The question is, once this current spate of selling is over, which asset classes will bounce back strongly and which will show relative weakness?

At some point, metals markets will decouple from financial markets. A likely catalyst will be the economy turning down and some fear being injected into richly valued equity markets. Fear causes volatility to surge and share prices of vulnerable stocks to sink.

Fear also drives investors to seek safe havens. During times of panic on Wall Street, demand for bullion often goes up.

Although paper prices for precious metals don't always correlate to activity in the bullion market, the potential for shortfalls of physical supplies exists – especially given the strains being suffered currently by the mining industry.

Physical supply and demand fundamentals will ultimately determine the major trend for gold and silver prices. While it's too early to tell how the rest of the year will unfold, supply deficits seem highly likely across the metals space – from silver to platinum to copper.

Goldman Sachs is now forecasting a deficit of refined copper for 2024 of more than half a million tonnes. Last year several copper mines around the world were shut down unexpectedly.

At the same time, the push for decarbonization and electrification is expected to send copper demand higher for the foreseeable future.

According to new reports by BMI Industry Research and Citibank, copper prices are likely to surge by 75% over the next two years.

Investors who are bullish on copper can buy it in physical form. From copper pennies to rounds to larger bars, a wide variety of options exists. However, copper bullion tends to be less practical than its more precious counterparts for large-scale accumulation due to its much lower value per ounce.

The kicker is that what lifts copper will also likely help lift gold and silver as well. Some major operators in the mining sector may refocus their efforts on trying to ramp up copper production at the expense of gold, silver, and other metals. That could exacerbate supply deficits across the precious metals space.

Meanwhile, China is expected to push new stimulus programs to try to revive its economy. China's insatiable appetite for raw materials will surely impact global supply chains.

In the Chinese lunar calendar, 2024 is the Year of the Dragon. The most popular creature of the 12 on the lunar calendar. Newly released 2024 coins and rounds commemorating the Year of the Dragon are sure to be hot sellers.

In particular, the Perth Mint of Australia's limited edition Lunar Series includes one-ounce gold and silver coins with 2024 date marks depicting the Year of the Dragon. They are minted from .9999 pure gold and .9999 pure silver – that's four nine of fineness.

Australia's Perth Mint is renowned for making quality gold and silver coins such as its popular gold, silver, and platinum Kangaroos. Perth Mint products are recognized around the world and traded everywhere.

Allocations of its 2024 Lunar Series coins are limited and tend to sell out fast, especially during this special Dragon year.

People born under the sign of the Dragon are thought to carry some of the Dragon's traits; powerful, endlessly energetic and full of vitality. Perhaps that will apply to metals markets on the whole in this Year of the Dragon.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a wonderful weekend everybody.

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