CPM Market Commentary: Precious Metals rise on investor concerns and market mechanics

New York-based CPM Group, a commodities research, consulting, financial advisory and commodities management firm, has provided a commentary on metals and related topics.

The prices of the four precious metals – gold, silver, platinum, and palladium – all have risen sharply over the past two trading days. Figures in US$.

Tellingly, the prices of copper, oil, and other commodities have not been rising during these days, suggesting that the factors that are pushing prices are simultaneously (a) not specific to any individual precious metals but also (b) not indicative of economic developments that would be affecting a broad range of commodities. This is something specific to precious metals.

Gold has broken above former resistance around $1,815 and reached $1,871.10 today. Silver has risen to $23.35 on 22 July, the highest price by far since early September 2013. Silver broke above the $20 ceiling that has been in place for most of the time since September 2014. Palladium rose to its highest level since late March and platinum since late February.

Prices are rising as investors react to a wide array of economic, financial, and political uncertainties. The EU multi-trillion-dollar stimulus agreement Monday and discussion for more fiscal stimulus in the United States emphasize the risks still facing the European and global economies. U.S. belligerence toward China and domestic opponents to Trump add to the nervousness. Investors facing recent strong equity markets even as economic conditions do not warrant such strength are nervous. In this environment, and with large open interest still needing to roll out of the August Comex gold futures contract by next Friday, prices have risen.

CPM had projected a spike to $1,920 in August or September in its 9 July Precious Metals Advisory. We projected that silver would hit $20, platinum $950, and palladium $2,100. Those still seem reasonable ceilings for gold and platinum, although with silver and palladium we obviously were too cautious

That said, while prices may remain unsettled and all four precious metals may rise more during August and September, there are at least a few cautionary points to make. Prices can briefly correct downward sharply over the next few months. Second, prices may back off some once the September Comex silver and Nymex palladium rolls are completed. Third, much of the rise is fueled by short-term speculative buying and short-covering, all of which can disappear quickly.

Last July and August gold and silver prices rose. At the time there were ill-founded fears of recession and an over-valued stock market, but the big impetus was the August Comex gold roll and the Silver Comex silver roll. Once those were behind the market, prices fell, and declined from 5 September into late December.

This is 2020, however. It is not 2019. The economic and political problems are on top of the world now, not on the distant horizon as they were last autumn. The U.S. election is approaching and there are many risks related to it that have never been experienced before. The U.S. government is trying to trigger a critical event with the Chinese government, having sent two aircraft task forces into the South China Sea, made many threats and today ordering the closure of the Chinese consulate in Houston. Brexit still is on the horizon, and many issues have not been addressed, in part due to the coronavirus pandemic. There are many other issues hanging over the world.

As a result, prices may not keep rising after August, but they ought not be expected to fall back the way they did in the last four months of 2019. The world is in a much more treacherous place economically, financially, politically, and public health wise compared to 2019.

Platinum and palladium may be less volatile and less vulnerable than gold and silver over the remainder of this year. Fabrication demand is holding up better with recoveries in the important auto and electronics industries. Palladium and platinum thus may not rise as much as gold and silver, since they are not financial assets like gold and silver but are more industrial metals. This attribute may reduce their price upside but also protect them on the downside. Platinum may see more strength than palladium, since palladium basically is at near record highs while platinum is seeing investment buying, as it has had lower prices for years and is a bargain relative to palladium.