October Precious Metals Monthly Report: Macroeconomics and geopolitics are expected to support gold investment until 2025

The Zhitong Finance App learned that MetalsFocus Metals focuses on publishing the “October Precious Metals Monthly Report”, indicating that due to strong US employment data in September, the financial market has lowered interest rate cut expectations, it is currently more likely that the Fed will cut interest rates by 25 basis points each at the November and December policy meetings. Continued cuts in US interest rates should lead to lower US bond yields, while narrowing interest rate spreads between the US dollar and other major currencies will continue to weigh on the US dollar, which in turn will benefit precious metals. As concerns about the US recession gradually subside, which may lead to a further rise in the stock market, the trend of pursuing portfolio diversification is also expected to continue, which will support the strengthening of gold.

The outcome of the US presidential election is uncertain. At the same time, concerns about US fiscal policy and debt may intensify, which will also be an important factor affecting market trends. Furthermore, even if the most tense situation in the Middle East has abated, it will be difficult to return to normal in the foreseeable future. These factors will support investors' interest in precious metals until 2025. It is currently expected that the price of gold will repeatedly reach record highs in the next few months, which will help boost the price of silver.

Macroeconomic Status and Prospects

The US stock market hit new highs in September, and the S&P 500 index has been rising for the fifth month in a row. The Federal Reserve cut interest rates sharply by 50 basis points, starting a cycle of interest rate cuts, which is the main driving factor for the rise in the stock market. After the Federal Reserve policy meeting was held in September, market expectations that interest rates will be cut by another 50 basis points in November have also heated up, causing the US dollar index to fall to a new low in a year.

Precious metals also benefited from the weakening dollar and rising. The recent rise in safe-haven purchases after geopolitical tension in the Middle East has intensified, providing additional impetus for the strengthening of precious metals, especially gold.

At the end of September, the Chinese government announced that it would launch a package of aggressive economic stimulus measures to push the Chinese stock market to its biggest increase since 2008. The sharp rise in the Chinese stock market helped strengthen the European market and industrial metals, and its spillover effects also benefited silver.

At the time of publication of this report, due to strong US employment data in September, the financial market had lowered interest rate cut expectations. Currently, it is more likely that the Fed will cut interest rates by 25 basis points each during the November and December policy meetings.

Despite this, the continuous reduction in US interest rates should lead to lower US bond yields, while the narrowing of interest rate spreads between the US dollar and other major currencies will continue to weigh on the US dollar, which in turn will benefit precious metals.

As concerns about the US recession gradually subside, which may lead to a further rise in the stock market, the trend of pursuing portfolio diversification is also expected to continue, which will support the strengthening of gold.

The results of the US presidential election are uncertain before election day. At the same time, concerns about US fiscal policy and debt may intensify, which will also be an important factor affecting market trends. Furthermore, even if the most tense situation in the Middle East has abated, it will be difficult to return to normal in the foreseeable future.

These factors will support investors' interest in precious metals until 2025. It is currently expected that the price of gold will repeatedly reach record highs in the next few months, which will help boost the price of silver.

Current Status and Prospects of the Gold Market

Gold prices continued to rise in September due to the fact that the Fed cut interest rates were greater than expected, compounded by the escalating tension in the Middle East region. After hitting a record high of 2,685 US dollars/ounce on September 26, the price of gold fell slightly. At the time of writing this report, it was trading around 2,650 US dollars/ounce.

MetalsFocus raised its gold price forecast significantly. The reasons for the increase include growing expectations that the US will speed up interest rate cuts and the growing willingness of professional investors to diversify their portfolios. This often reflects their belief that stock prices are too high or that the prospects for US government debt are poor.

Against this background, investors have been buying in large quantities every time the price of gold recovers in recent months, which has greatly boosted the reserve price of gold. Equally important, institutional investors are reluctant to sell or short gold even though the price of gold has repeatedly reached record highs.

Net long positions in gold futures held by CME (Chicago Mercantile Exchange Group) managed funds continued to rise, highlighting the growing enthusiasm of investors to go long on gold. Although net long positions (in terms of contracts) were still 20% lower than the historical peak as of the beginning of October, the total position value has repeatedly reached record highs since July. Similarly, net capital inflows into gold ETPs (exchange-traded products) continued in September, achieving net inflows for the fifth month in a row.

Steady purchases of gold by global official departments have also helped the price of gold rise, and this trend is expected to continue in the foreseeable future. Although the pace of purchases has slowed so far this year, net purchases in absolute terms are still at an all-time high.

Looking ahead, it is expected that the macroeconomic and geopolitical environment will continue to support gold investment until 2025. Even if the Federal Reserve cuts interest rates slower than expected in the next few months, real yields should continue to decline.

Furthermore, given factors such as growing concerns about the level of US debt, heightened tension in the Middle East region, and high stock prices, investors should have reason to diversify their portfolios, which will attract capital to the gold market. Investors seeking to preserve their wealth will further boost the price of gold.

However, MetalsFocus believes that once the gold price hits the $3,000 per ounce mark in the first quarter of 2025, it is doubtful whether it can continue to rise. The reason is that expectations of future interest rate cuts by early 2025 will basically be reflected in the gold price. It may be too crowded to go long for gold at that point. Therefore, it is expected that the price of gold may begin to fall later, but considering many macroeconomic and geopolitical uncertainties, the price of gold may remain high until the end of the third quarter of 2025.

Demand for gold jewellery in China remained weak in September due to high gold prices, compounded by poor consumer confidence. This is also reflected in the slump in wholesale business during the Shenzhen Jewelry Fair in September. Retailers are also limited in stocking up for the 11th Golden Week (which has traditionally been the second-largest jewellery retail season in China). In order to reduce operating costs, some jewelry showrooms and processors have increased the number of vacation days for employees.

Demand for gold among Indian consumers slowed in September as the price of gold rose to a record high, compounded by the advent of an unlucky 15-day period to mourn the dead. Retailers are also wary of replenishing inventory at such high gold prices. Gold prices are expected to strengthen further, which will continue to weigh on demand for gold during Diwali (October 31 this year).

After demand began to rise in late August, Turkey's physical gold demand continued to strengthen in September. In particular, interest in buying gold was boosted by the continued rise in gold prices during the second half of the month. Strong demand, compounded by limited gold supply (due to the government setting a monthly import quota of 12 tons), caused the premium of local gold prices over international gold prices to rise from $40-50 per ounce in late August to $60-80 per ounce in late September, and to $130 per ounce in early October. In contrast, as international gold prices rose to record highs, the price of gold in the Dubai market discounted the international gold price by 4-5 US dollars/ounce during the same period.

In terms of mineral gold supply, in September, Anglo-American Gold Ashanti signed an agreement to acquire Centamin Mining with a transaction value of 2.5 billion US dollars. Under the acquisition agreement, Anglo-American Gold Ashanti will acquire control of Centamin's Sukari gold mine in Egypt. The acquisition is expected to increase the annual gold production of Anglo-American Gold Ashanti by about 450,000 ounces to around 3 million ounces.

Price prediction risk factors: In terms of the risk of rising gold prices, the Federal Reserve's position is more dovish or the continued deterioration of the geopolitical situation may significantly push up the inflow of safe-haven capital, which in turn will drive up the price of gold. In terms of downside risks, rising inflation or easing geopolitical tension may trigger a profit settlement for gold investors. A sharp correction in the stock market may also be bad for gold, as investors will rush to sell current assets to make up for stock market losses.

Status and outlook of the silver market

After another failed attempt to break through the $30 per ounce mark in late August, the price of silver weakened in early September and fluctuated within the range of 28-29 US dollars/ounce for the first 10 days. Since then, silver prices continued to rise until the end of the month, and the rise continued until early October. After climbing to an 11-year high of $32.96 per ounce on October 4, the price of silver fell. At the time of writing this report, it was below $32 per ounce.

Gold outperformed gold in early September due to market concerns about the Chinese economy (extending to industrial metals) and benefiting most from geopolitical tensions and portfolio diversification strategies.

During the second half of September, silver rebounded strongly, and its monthly increase ranked first among precious metals. This partly reflects a rise in tactical investors' interest in silver as the gold/silver price ratio approached 90:1 in late August and early September, when silver appeared to be undervalued. More importantly, as the Chinese government unexpectedly introduced the most aggressive post-COVID-19 economic stimulus measures in late September, silver benefited from a sharp rebound in industrial metals prices.

Silver prices broke through the consolidation range, prompting more short-term investors to follow the trend and buy. Net bulls in silver futures held by CME managed funds hit a two-year high on September 24, and then only declined slightly. Global silver ETPs also achieved a moderate inflow of capital. At the end of September, total holdings had risen to a two-year high.

Looking forward to the future, in order to reflect the driving effect of higher gold prices, the silver price forecast has been slightly raised since the release of the previous monthly report. Despite a recent decline, the gold/silver price ratio is currently close to 83:1, which is at a high level. At the same time, the current silver price is still far below its historical peak. Considering these factors, there is still plenty of room for speculative capital to flow into the silver market.

As is the case with gold, since the interest rate cut process should have passed by then, it will be difficult for silver to continue rising after entering the second half of 2025. It should also be emphasized that the gold/silver price ratio is expected to decline slightly in the latter half of 2025, which is different from the historical norm where the trend of silver usually outperformed gold during the period when precious metal prices declined. This judgment is based on the assumption that the continued shortage of supply in the silver market may attract some long-term investors.

Continuing the trend of previous months, retail silver investment demand in Western countries remained weak in September, reflecting a decline in investors' demand for safe-haven assets. At the same time, the market was almost saturated after extremely high purchases during the 2020-2022 period.

India's demand for silver rose briefly after the government lowered import tariffs, but demand fell again in September as a rebound in international silver prices pushed domestic silver prices close to pre-tariff levels. As consumer demand slows, retailers are reluctant to restock inventory at current prices. Looking ahead, similar to the situation with gold, if silver prices continue to rise, consumer purchases of silver during Diwali this year may be affected.

In terms of demand from the silver industry, the number of orders received in the third quarter of 2024 was lower than expected, forcing major silver end users to focus on controlling inventory levels. In recent years, the photovoltaic industry has been the main force driving the growth of demand in the silver industry, but the current trend of slowing demand is clearly evident. Feedback from Chinese photovoltaic product manufacturers shows that the visibility of orders for the fourth quarter of this year is uncertain because implementation of some large-scale domestic projects may be delayed, while overseas demand, especially in Europe, is still weak. There are also some negative factors in other parts of the world. The US announced in October that it would implement anti-dumping measures against solar cells imported from some Southeast Asian countries, while the decision to further raise tariffs also increased uncertainty. The Indian government has implemented a “list of approved models and manufacturers” system, which essentially forms a barrier to importing photovoltaic products from China, which has affected the country's photovoltaic power generation installed capacity. The import management guidelines apply to the import of photovoltaic modules from April 2024, and will apply to the import of photovoltaic cells from April 2026.

On the supply side, Coldaren Mining announced that it will acquire SilverCrest Metals for $1.7 billion. After the acquisition is completed, Cordelan will take SilverCrest's Las Chispas mine in Mexico under its command, owning a total of five active mines in North America. The company currently expects to produce 21 million ounces of silver and 432,000 ounces of gold in 2025, respectively.

Price prediction risk factors: Like gold, the main risk factors for rising silver prices include increased geopolitical risk and the Federal Reserve cutting interest rates faster than expected. If China introduces more aggressive economic stimulus measures, it will inject additional impetus into boosting investors' confidence in industrial metals, which is beneficial to silver. In terms of downside risks, the support measures currently in place may not be enough to boost China's economic growth significantly. Once pessimistic expectations for the Chinese economy are restored, they may weigh down industrial metal prices, which in turn will drag down silver prices.

Platinum Market Status and Outlook

The opening price of platinum in September was 928 US dollars/ounce and quickly fell to a monthly low of 901 US dollars/ounce on the 4th. Continuing the fluctuating trend in the range, the price of platinum was supported at the $900 per ounce mark and only then fell after rising to around $1,000 per ounce. Like other metals, platinum prices rose after the Federal Reserve announced a 50 basis point cut in interest rates on September 18, hitting a monthly high of 1,019 US dollars/ounce on the 26th after the gold price hit a record high. However, the price of platinum once again failed to stand above $1,000 per ounce, closing at the end of the month at 981 US dollars/ounce. The price of platinum continued to decline slightly in early October.

The average price of platinum in the third quarter of 2024 was $964 per ounce, which is $14 higher than the previous forecast. As platinum supply will continue to be in short supply, China's platinum imports will continue to rise, and favorable factors such as stable demand for fossil energy vehicles, etc., the platinum price forecast for the period from the fourth quarter of 2024 to the fourth quarter of 2025 will remain unchanged.

Total global platinum ETP holdings fell by 136,000 ounces (down 4%) to 3.22 million ounces in September, returning to the level of April this year. Although total holdings have increased by 5% so far this year, this is a 10% drop from the annual high of 3.58 million ounces set in mid-June. Similar to other major changes in holdings this year, European funds reduced their holdings by 131,000 ounces in September, which is the main reason for the decline in total global platinum ETP holdings. Unlike the situation in previous months where the platinum price hit $1,000 per ounce, the September sales period focused on the 11th to 17th. This is probably because investors already expected the Federal Reserve to cut interest rates.

At the beginning of September, platinum futures held by CME Management Fund were net short, reaching 465,000 ounces, a record high in six months. However, after that, the position situation quickly reversed, and net longings reached 753,000 ounces at the end of the month. The net position changed from net short to net long, with a change of 1.2 million ounces, reflecting the scale of speculative activity in the volatile environment of the platinum price range. When the price of platinum approaches $1,000 per ounce, long positions have reached their highest; when approaching 900 US dollars/ounce, short positions have reached their highest level.

As the price of platinum fell to around 900-950 US dollars/ounce for the first time since April this year, the combined net imports of platinum from mainland China and the Hong Kong Special Administrative Region rose to 436,000 ounces in August, a record high in three years. As of the end of August, the total import volume so far this year was 1.74 million ounces, up 34% from the same period in 2023, but 17% and 14% lower than the same period in 2021 and 2022. The increase in China's platinum imports in August may lead to a tightening of the forward curve and increase platinum leasing costs.

Turning its attention to the automotive industry's demand for platinum, BMW announced that it has successfully completed testing of the BMW iX5 hydrogen fuel cell vehicle around the world and will begin mass production in 2028. The development of hydrogen fuel cell technology for light vehicles is beneficial to stronger demand for platinum in the future. The total demand for platinum in the automotive industry is estimated to be 3.24 million ounces in 2024, of which hydrogen fuel cell vehicles are still very low (accounting for less than 1% of total light vehicle demand).

In September, the US Congress began discussions on the FY2025 Defense Authorization Act. Important meetings include the House Armed Services Committee meeting held on September 16 and the Senate review session. The focus is on strengthening the domestic supply chain for key minerals, including platinum. The legislation aims to promote the independence of America's mineral supply chain. Specific measures include supporting research and development of recycling technology, improving the mining licensing system, and ensuring international cooperation. These measures are expected to increase stocks and purchases of platinum group metals used in the military technology field, so that platinum group metals maintain their position as a strategic national security resource.

Platinum recycling supply growth is weak in 2024, and is expected to rise only 3% year over year to 1.18 million ounces. Part of the reason behind this is that some recyclers are stocking up, but the main reason is that the supply of end-of-life cars is dwindling. Given regulatory uncertainty, consumers may be reluctant to get rid of old cars and buy new ones. Vehicle electrification targets set by the government have changed, and emission targets have also changed from time to time, causing many consumers to be unsure whether to choose electric vehicles right away or wait for regulations to become more clear before starting. In the face of the constant changes in the automotive market, consumers are in a state of hesitation and are delaying purchasing decisions. The market is expected to return to normal in 2025, and the corresponding platinum recycling supply is expected to increase 15% year over year.

In terms of mineral platinum supply, Anglo-American Resources Group has begun to reduce its holdings in Anglo-American Platinum and dispose of 13 million shares, which is about 5% of the total number of common shares issued by Anglo-American Platinum. The purpose of reducing shareholding is to increase the free circulation of shares of Anglo-American Platinum companies located in South Africa and prepare for a corporate split.

Price prediction risk factors: If interest rate cuts can boost automobile demand, the supply of waste car catalysts may rise, or weigh down platinum prices. Although the current platinum price has not replicated the upward trend in gold prices, the decline in gold prices from historical peaks may still weigh down expectations that platinum prices will rise.

The opening price of palladium in September was 968 US dollars/oz. After falling to 907 US dollars/ounce on the 6th, it was supported at the 900 US dollars/ounce mark. The trend is the same as platinum. On September 11, the price of palladium broke through $1,000 per ounce and reached the 200-day moving average. Although the price of palladium briefly stood at the 200-day moving average twice earlier this year, this was the first major breakthrough since October 2022, injecting momentum into the upward trend in palladium prices. Palladium investors' sentiment is improving. Part of the reason may be that it is expected that the North American mine under Sibanye-Jingshui Mining will cut palladium production. Palladium prices will be further boosted after production cuts were officially announced on September 12. The price of palladium hit 1,125 US dollars/ounce on September 18, a new high since December 2023 (concerns about interruptions in Russian palladium supply at the time triggered similar shortfall), aided by the futures market's shortfall. At the end of the month, the price of palladium closed at 1,004 US dollars/ounce. For the first time since March of this year, the closing price stood at 1,000 US dollars/ounce, and remained above that price in early October.

As in the case of platinum, the predicted value of palladium prices for the third quarter of 2024 was only slightly lower than the actual level of $970 per ounce. It is estimated that there will be a huge shortage of palladium supply this year, reaching 377,000 ounces in 2025, so the study that palladium prices will rise slightly remains unchanged.

At the beginning of September, the transaction price of palladium had a premium of about $40 over platinum, then briefly switched to a discount on platinum on September 9. Palladium was supported at this level, and the premium on platinum soared to nearly $140 on September 18. Currently, the price of palladium and platinum is around $1,000 per ounce, which is at an affordable price.

Total global palladium ETP holdings fell 4% (down 34,000 oz) to 725,000 oz in September. As was the case with platinum, it has also returned to the level of April this year. Despite the decline in September, total holdings have risen 22% so far this year. North American fund holdings have risen 33% so far this year, and were bought when palladium prices were low, but the average price of palladium rose to 1,019 US dollars/ounce in September, reaching a new high during the year and ended profitably. This is the main force affecting the changes in total global palladium ETP holdings in September and up to now this year. The current holding volume of South African funds is only 11,000 ounces, less than 1% of the peak level in 2015 (1.39 million ounces), and 68% lower than the high in May of this year (33,000 ounces).

Due to low palladium prices throughout the month to stimulate imports, the combined net palladium imports from mainland China and the Hong Kong Special Administrative Region reached 221,000 ounces in August, 56% higher than the average monthly imports so far this year, a record high since November 2023. Similar to the situation with platinum, increased imports from China may strain supply in the palladium market and drive up rental costs.

Palladium futures held by CME Management Fund in early September were a net short of 1.278,000 ounces. After that, the rise in palladium prices triggered shortfall, that is, a sharp rise in the price of an asset will force bears to make up and close positions. Shorting led to a 37% drop in total short positions and halved net short positions to 600,000 ounces at the end of the month, setting a new low of net short positions since December 2022 (which also occurred at the time). However, some short positions were re-established in early October.

According to estimates, the weighted average price of palladium net short positions is currently below $1,000. Previously, when palladium prices rose, investors were more able to prevent losses due to their short positions, but now a larger percentage of investors are already in a state of floating losses, so they are more likely to quickly recover and close positions to protect profits or limit losses, which will lead to increased volatility in palladium prices.

According to estimates, global demand for palladium in the automotive catalyst sector was 8.3 million ounces in 2024, down 1% year on year. Although the market share of pure electric vehicles continues to rise and internal combustion engine vehicle production is declining, the increase in hybrid vehicle production has limited the decline in palladium demand in the automotive industry.

In September 2023, China began implementing a regulatory policy on automobile recycling. The new regulations require businesses to qualify and record details of recycled parts. After falling due to regulatory restrictions last year, car recycling in China rebounded, which should increase domestic palladium supply by 51% to 240,000 ounces this year. The global recycling supply of palladium is expected to increase by 2% to 2.12 million ounces in 2024.

In terms of mineral palladium supply, Sibanye-Jingshui Mining has decided to cut production at its East Boulder mine and suspend production at the Xijingshui mine in Montana, USA. The main reason is that low platinum group metal prices affect the mine's financial viability. The company will lay off about 700 employees and carry out business restructuring to focus on mining high-grade ore at the Dongjing Water Mine to stabilize the company's financial situation. It is expected that due to the restructuring, the total production of palladium and platinum at the still water mine (of which palladium accounts for 77%) will be reduced by 200,000 ounces from 2025.

Price prediction risk factors: A high CME palladium futures short position means that it is more likely to run short, or it may cause palladium prices to soar.

Rhodium gold market status and outlook

Continuing the trend since the beginning of this year, there was little change in rhodium prices in September. The price of rhodium has been above $4,500 per ounce since April, and the volatility is very low. The opening price (selling price) of rhodium in September was 4,700 US dollars/ounce, and the month-end closing price was 4,750 US dollars/ounce. The monthly fluctuation range was 4,625-4,825 US dollars/ounce.

MetalsFocus maintains its 2024 rhodium price forecast unchanged. After reaching a new high in 2022, rhodium prices fell sharply, but have now stabilized. Rhodium supply shortages are expected to be significant until 2024, and will continue in 2025 (but the quantity will narrow).

The combined net rhodium imports from mainland China and the Hong Kong Special Administrative Region were 35,000 ounces in August, a record high since June 2020. By the end of August, total imports so far this year had risen 58% year over year to 180,000 ounces, a record high for at least the past five years. Similar to the situation of platinum and palladium, China's rhodium imports have also risen significantly, although the price of rhodium is not low enough to stimulate speculative purchases. This may reflect that the sentiments of participants before the Chinese government introduced an economic stimulus package in September had an impact on the market ahead of time.

Demand for rhodium in the automotive catalyst sector is expected to drop 2% year over year to 971,000 oz in 2024, similar to palladium demand. Higher rhodium prices have prompted automakers to save on rhodium usage, and it is unlikely that this trend will be reversed in the near future.

Demand for rhodium in the chemical industry increased by 42% to 136,000 ounces in 2024, thanks to the expansion of production capacity by North American companies. However, demand is expected to drop by nearly half to 73,000 ounces in 2025 as the trend of significant expansion in acetic acid production capacity will not continue. In other sectors of the chemical industry, demand for rhodium in the electroplating sector continues to rise, and demand from nitric acid producers is also stable.

The glass industry's demand for rhodium is expected to increase by 56,000 ounces in 2024. Demand declined in 2020, 2022, and 2023 over the past four years, with a net decrease of 69,000 ounces in 2023. The trend of platinum replacing rhodium in platinum-rhodium alloys has come to an end, and the corresponding demand for rhodium is no longer declining. The expansion of LCD production capacity in China is driving the growth of the entire industry, which is an important factor leading to a shortage of 186,000 ounces of rhodium supply this year. The shortage of supply will prevent rhodium prices from falling further. As LCD capacity expansion will slow down after entering 2025, the glass industry's demand for rhodium will drop to 18,000 ounces.

Price prediction risk factors: Although rhodium imports from mainland China and the Hong Kong Special Administrative Region have risen, if purchases prove to be mainly speculative, large-scale shipments will significantly disrupt the rhodium market, causing rhodium prices to plummet as in the period 2022 to 2023.