Commodities Market Review: Gold and Other Precious Metals Rise as Investors Prepare for Falling Rates
Gold (GDX)
Gold (GDX) prices rose an astounding 7.41% in 3 days last week. The jump was led by escalating tensions between Iran and western countries, including Britain and the US, as well as expectations of monetary easing by global central banks. In fact, gold briefly hit a 6-year high of $1,452.60 on Friday after the news came out that Iran seized a British oil tanker in the Strait of Hormuz in alleged retaliation for the UK seizure of an Iranian tanker two weeks prior. The geopolitical uncertainty in the Middle East signals the possibility of enhanced conflict breaking out.
In order to offset economic data indicating a slowdown in global growth, global central banks are expected to continue plans for monetary easing by cutting interest rates, printing additional currency, and buying significant amounts of financial assets. One example is the US Federal Reserve, which is expected to cut its interest rates by at least a quarter-point when it meets later this month. The expectations for a global downturn leads to shifting trends in asset markets, such as the fact that the sum of bonds yielding less than nothing, or carrying a negative yield rate, rose to a record $13 trillion this month. The rise in negative-yielding bonds indicates investors nervousness about the economic outlook. Specifically, the fact that they are willing to accept a negative return shows they view negative-yielding bonds as a safer, and more financially sound, option than competing assets such as stocks and leveraged loans. Gold, which is viewed by investors as a safe-haven and risk-averse asset, historically thrives in times of uncertainty, economic slowdown, and global conflict due to its stability and limited dependency on either the value of a currency or current global economic condition.
Nickel
Similarly, Nickel gained a rapid 4.73% from July 17th to July 20th. Commodities analysts are split on the exact reason for the notable price jump, but there is no shortage of candidates. One probable catalyst for the rise is the ore export ban in Indonesia scheduled to begin in 2022, as the country is responsible for approximately a quarter of the global nickel supply. Another driver could be the falling stockpiles at the London Metal Exchange, a hub for the global commodity trade, as the use of the ‘emergency supply’ could signal a tightening of the market.
As commodities prices are predominantly dictated by the basic idea of supply and demand, the decrease in supply could naturally raise prices assuming demand for the metal stays consistent. Yet, both announcements have been public for a few months, which leads many experts within the resources world to believe the price gain could be partially due to external macroeconomic factors, such as the rising geopolitical tensions that are also lifting the price of gold. Looking onward, the long-term demand for nickel looks strong as nickel’s application to batteries and energy storage, which currently only accounts for 3% of nickel’s use today, is expected to soar due primarily to the rise of electric and autonomous vehicles.
Silver (SLV)
Similar to its counterparts of Gold and Nickel, Silver (SLV) increased 4.33% over the same 3-day time horizon. The rise included a brief stint to the metal’s highest value in over a year. The main drivers for the surge were concerns about diminished supply and a delayed reaction to the recent price action of gold. Tight supply concerns for the metal remain after the world’s main silver miner, Fresnillo PLC, recently announced output target cuts for the year, down from 58-61 million ounces to 55-58 million ounces produced for the year.
On top of this, the recent rise in the gold price, which typically leads to a delayed movement in the price of silver, made the latest rise in silver seem almost inevitable. If gold maintains its upward trajectory and reaches the $1,500 level, silver could approach the crucial trading level of $20/ounce, a magnitude it has not seen since 2016. Precious metals have experienced a consistent rise in price throughout the first half of the year. Yet, silver has largely been left out of the gains up until now, which has resulted in historically high values for the Gold/Silver price ratio. Continuing with the theme of Silver experiencing a delayed reaction in terms of price action, many analysts believe silver will outperform gold for the remainder of the year, due in part to the latter outperforming the former by over 5% YTD.
I Know First Gold and Commodities Forecast Performance
On July 17th, 2019, the I Know First algorithm issued bullish predictions for commodities for a 3-day time horizon. This forecast analyzes the commodity market overview. I Know First’s predictions included Gold (GDX), Nickel, and Silver (SLV). Gold (GDX) had a positive signal of 0.28, Nickel had a positive signal of 1.99, and SLV had a positive signal of 0.53. GDX had a predictability indicator of 0.18, Nickel had a predictability indicator of 0.14, and SLV had a predictability indicator of 0.14. Over the 3 day trading period from 17th July to 20th July, GDX gained 7.41%, Nickel gained 4.73%, and SLV gained 4.33% in good agreement with the I Know First forecast. This bullish commodities forecast was sent to the current I Know First subscribers on 17th July, 2019.
Algorithmic Stock Forecast: This article is a commodity market overview. The table is a commodities forecast produced by I Know First’s algorithm. Each day, subscribers receive forecasts for six different time horizons. Note that the top 10 commodities in the 1-month forecast may be different than those in the 1-year forecast. In the included table, only the relevant commodities have been included. The boxes are arranged according to their respective signals and predictability values (see the link for detailed definitions). A green box represents a positive forecast, suggesting a long position, while a red represents a negative forecast, suggesting a short position
Please note – for trading decisions, use the most recent forecast.Get today’s forecast and top commodities picks.
