Financial markets are looking to stabilize, but fears persist.
A firm recovery in government bond yields backs US Dollar’s gains.
XAU/USD extends slide within Monday’s range, aims for lower lows.
XAU/USD extends Monday’s losses and trades in the $2,380 price zone as markets abandon panic. On the one hand, stocks are in better shape after collapsing at the beginning of the week, with United States (US) indexes trading in the green after mixed results among their overseas counterparts. The better tone of equities undermines demand for Gold.
On the other hand, government bond yields recovered, with the 10-year Treasury note yield up over 20 basis points (bps) after falling to fresh multi-year lows, supporting the US Dollar against the bright metal. Nevertheless, market players are still concerned about the United States (US) economic health and maintain bets on massive interest rate cuts before year-end.
XAU/USD short-term technical outlook
XAU/USD trades around the 50% Fibonacci retracement of its June/July rally at $2,388.70, and technical readings in the daily chart show that the risk is skewed to the downside. The pair met intraday buyers around the 38.2% retracement of the same run at $2,411.20, while the 20 Simple Moving Average (SMA) converges with the mentioned level, losing its bullish strength. Technical indicators, in the meantime, head south within negative levels, in line with a downward extension.
In the near term, and according to the 4-hour chart, the bearish case is even stronger. Technical indicators resumed their slides within negative levels and after correcting oversold conditions. At the same time, the 20 SMA gains downward traction well above the current level, while XAU/USD keeps putting pressure on a mildly bullish 200 SMA.
Gold price consolidates the rebound after Monday’s risk aversion-led ‘sell-everything mode’.
The US Dollar rebounds with Treasury bond yields and risk appetite, checking Gold price upside.
Increased bets for aggressive Fed rate cuts remain supportive of Gold price.
Gold price defended 21-day SMA at $2,410, acceptance above $2,425 is critical while the daily RSI stays bullish.
Gold price is consolidating the previous swift rebound to near the $2,410 region early Tuesday, as traders absorb Monday’s volatile trading. Gold price struggles to build on the recovery mode amid a solid comeback staged by the US Dollar, alongside the US Treasury bond yields.
Gold price looks to Middle East updates
Following the assurances by the US and Japanese authorities to calm nerves, markets are witnessing a massive positive shift in risk sentiment. The Asian stocks attempt a turnaround, with the Japanese benchmark index – the Nikkei 225, jumping nearly 10% so far, reversing the 12% historic sell-off seen Monday.
With the return of risk flows, the haven demand for the US government bonds fades, putting a fresh bid under the US Treasury bond yields and helping lift the US Dollar across the board at the expense of the non-interest-bearing Gold price.
San Francisco Fed President Mary Daly said early Tuesday, “none of the labor market indicators she looks at are flashing red at present, but she is monitoring carefully.” Daly, however, added that her mind was open to cutting interest rates as necessary and policy needed to be proactive.
Meanwhile, Japanese Finance Minister Shunichi Suzuki said that he is “seeing bright aspects in the economy on wages, investment front.”
Further, diplomats from the US and Arab nations attempt to de-escalate the tensions between Iran and Israel that flared up since Wednesday, when Hamas leader Ismail Haniyeh was killed in Tehran in an attack. Iran blamed Israel, vowing to retaliate, with US intelligence noting that the attack could be panned over multiple days.
The diplomatic efforts to diffuse the situation seem to provide some support to the recovery in risk sentiment. However, traders remain wary of Iran striking back against Israel, as the former said “it didn’t care if the response triggered a war.”
Iran’s foreign ministry spokesperson, Nasser Kanaani, stated on Monday that while Iran does not intend to heighten regional tensions, it believes it must punish Israel to deter further instability.
As the Middle East geopolitical situation remains in a delicate spot, traders are glued to the upcoming developments, refraining from placing any fresh position in the Gold price. However, the downside in Gold price could remain limited, as markets continue pricing in a nearly 90% chance that the US Federal Reserve (Fed) will cut interest rates by 50 basis points (bps) in September, according to the CME Group’s FedWatch Tool.
Additionally, the market has around 115 basis points of easing priced in for this year, and a similar amount for 2025, per Reuters.
Monday’s sell-off in Gold price, despite broad risk-aversion, could be attributed to investors locking in gains in their Gold longs to cover losses elsewhere. Global stock markets were in turmoil amid escalating Middle East tensions and US economic slowdown fears, following the weak US jobs report on Friday.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price closed Monday above the key 21-day Simple Moving Average (SMA) support, then at $2,411.
Meanwhile, the 14-day Relative Strength Index (RSI) holds above the 50 level, currently near 52.50, suggesting that the bullish potential remains intact for Gold price.
Gold buyers, however, need acceptance above the static resistance at $2,425 to resume the recovery momentum toward the previous record highs of $2,450.
Further up, the lifetime high of $2,484, reached on July 17, will be on buyers’ radar.
On the flip side, if Gold sellers seek a strong foothold below the 21-day SMA, now at $2,712, the door will open up for a retest of the key confluence support near $2,370. The rising trendline support closes in on the 50-day SMA at that level.
The next relevant downside target is the 100-day SMA at $2,342.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Silver falls below 100-DMA ($28.67), trading at $27.23 after peaking at same.
Technicals suggest more silver declines; key supports at $27.00, 200-DMA at $26.02.
For recovery, silver needs to regain $28.00; resistances at August 2 high of $29.22 and 50-DMA at $29.79.
Silver’s price extended its losses below the 100-day moving average (DMA) of $28.67 and is down over 4.50% as risk appetite deteriorated following weaker data from the United States (US). This reignited recession fears, as ISM Manufacturing PMI and Nonfarm Payrolls report disappointed investors, who flock to safe-haven assets, mostly US Treasuries. The XAG/USD trades at $27.23 after hitting a daily high of $28.67.
XAG/USD Price Forecast: Technical outlook
The grey metal tumbled to a three-month high, with buyers battling to reclaim July’s low of $27.31, which would keep them hopeful of higher prices. However, momentum favors sellers, as shown by the Relative Strength Index (RSI), near hitting oversold conditions in normal trading environments.
If XAG/USD drops and achieves a daily close below $27.00, buyers will be pressured to hold forth at the 200-DMA at $26.02. If broken, sellers will drive Silver spot prices to the latest cycle low at $24.33, the March 27 low.
Conversely, if buyers reclaim $28.00, the next resistance would be the August 2 peak at $29.22. Further upside is seen once cleared, with the next supply area at the 50-DMA at $29.79
XAG/USD Price Action – Daily Chart
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold’s. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold’s moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
The first thing I notice is that every time we rally in this market, it’s very difficult to hang onto those gains.
At this point in the year, that makes a lot of sense and it’s probably worth noting that the spot market is closed at the psychologically important $2 level.
This obviously will attract a lot of attention, and therefore I think you will see the market continue to respect this area.
This is not to suggest that the market is likely to look at this as a “floor in the market”, but at this point in time I do think it will lease cause a bit of hesitation. If we break down below the $2.00 level, then it’s likely that the market goes looking to the $1.90 level. I do believe that there is an opportunity here, but you need to be cautious about jumping in with a huge position right away.
Cyclicality
Keep in mind that there is a cycle to the natural gas markets, and I am going to play this as an investment. I like the idea of buying little bits and pieces with no leverage, in order to set up for the eventual rally as we head toward the cooler temperatures later this year. That being said, you have to be very patient and wait for the market to turn things around in order to get long again, at least with any size. However, if you don’t have any leverage and are using a small position, you can build up a position that will pay you later in the year, all things being equal.
If the market were to turn around and break above the $2.20 level, then we have a situation where the market will continue to go higher, perhaps reaching toward the 200-Day EMA. While I don’t necessarily think this is completely impossible, I think it’s very unlikely at this point in time. For what it is worth, there is a lot of noise just below the $2.00 level that could keep this market somewhat buoyed.
Concerns about US economic health and Middle East tensions spurred risk aversion.
Treasury yields fell sharply, pushing the US Dollar up against Gold.
XAU/USD corrected from a critical support level, but risk is still skewed to the downside.
Risk aversion hit hard financial markets at the beginning of the week, triggering volatile movements across all boards. XAU/USD plummeted to $2,364.19 ahead of Wall Street’s opening, bouncing afterwards to trade around the $2,400 mark at the time of writing, still sharply down on the day. The US Dollar surged against the battered bright metal as concerns about the United States (US) economic performance and escalating tensions in the Middle East put markets in panic mode.
On the one hand, US growth and employment-related data released last week triggered alarms about a potential recession in the world’s largest economy, up to the point that speculative interest began considering an out-of-schedule interest rate cut in the upcoming days. On the other, airstrikes between Israel and the Palestinian Hamas group led to multiple deaths over the weekend, particularly hitting schools and hospitals. Menaces of retaliation came from both sides, spurring concerns they would fall into an all-out war.
Stock markets plummeted in Asia, with the Nikkei 225 having its second-worst day ever. European and American indexes also edged lower, although things stabilized after the US released the ISM Services PMI, which surged in July to 51.4 after posting 48.8 in June. The reading also surpassed the expected 51, pouring some cold water on market concerns.
Helping Gold, government bond yields trimmed early losses after the US opening. The 10-year note Treasury yield fell to its lowest in a year, backing the case for a XAU/USD slide. The note offered as low as 3.66%, with the latter recovery towards the current 3.78% level supporting the current intraday bounce.
XAU/USD short-term technical outlook
The daily chart for XAU/USD shows the pair met buyers around the 61.8% Fibonacci retracement of its June/July rally at around $2,366, a critical support area. However, technical indicators keep heading south, reflecting continued selling interest. Even further, the pair is developing below the 38.2% retracement of the aforementioned rally and a still bullish 20 Simple Moving Average (SMA), both located around $2,411.20.
In the near term, and according to the 4-hour chart, the case for a continued advance seems limited. Technical indicators have lost their ascendant strength below their midlines and after correcting oversold conditions, skewing the risk back to the downside. At the same time, the pair trades below the 20 and 100 SMAs, with the shorter one gaining downward traction, supporting the case for another leg south.
Silver price faces an intense sell-off below $28.00 as broadening demand concerns.
Weak US Employment and Manufacturing PMI prompted risks of global slowdown.
US bond yields weaken as investors see the Fed delivering a bulk rate-cut decision.
Silver price (XAG/USD) is down by more than 5%, skids below $28.00 in Monday’s European session. The white metal nosedives to an almost three-month low as fears of a global economic slowdown has intensified after a string of United States (US) economy data indicated that the nation is moving towards a recession.
Recent US data showed signs of slower labor demand and sheer weakness in the manufacturing sector. The US Unemployment Rate rose to its highest since November 2021 at 4.3%. Meanwhile, the Manufacturing PMI for July contracted at a faster pace to 46.8. The demand of the Silver as an metal with application in various industries, such as: Electric Vehicles, renewable energy, and wires and cables etc.
Investors have remained concerned over the Silver’s demand due to China’s economic vulnerability. The Chinese economy is going though a rough phase due to weak demand conditions in the domestic and the overseas market.
Meanwhile, a sharp decline in US bond yields and the US Dollar (USD) due to growing speculation that the Federal Reserve (Fed) will deliver a bulk rate-cut in its September meeting fails to lift the Silver price. 10-year US Treasury yields plunge to near 3.67%. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, plummet to more than annual low near 102.60.
Silver technical analysis
Silver price weakens after discovering strong selling interest near the prior breakdown zone around $28.60. The asset has declined to near the 200-day Exponential Moving Average (EMA), which trades around $26.85, suggesting that the overall trend is uncertain.
The 14-period Relative Strength Index (RSI) slips into the 20.00-40.00 range, indicating that the overall momentum is bearish.
Silver daily chart
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold’s. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold’s moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Oil prices remained steady on Wednesday, with Brent crude hovering near a one-month low of $83.30 hit on Tuesday. This stability comes as weakening demand growth in China contrasts with the expected decline in U.S. oil stockpiles.
Concerns over Chinese demand weigh on sentiment, but U.S. inventory drawdowns help limit the downside. China’s economic growth slowed to 4.7% in Q2, its weakest since early 2023.
Gold price is under pressure amid intense risk aversion-led ‘sell-everything mode’.
US jobs data fuelled recession fears and aggressive Fed rate cut bets and, hurting the US Dollar and Treasury bond yields.
Expectations of an imminent Israel-Iran war keep Gold price downside checked.
Gold price remains poised to retest lifetime highs at $2,484, US ISM Services PMI awaited.
Gold price remains on the defensive for the third day in a row, kicking off the week cautiously early Monday. Gold traders are now looking for more US economic data, including the ISM Services PMI due later Monday for fresh trading impetus.
Gold struggles despite Middle East escalation, dovish Fed bets
Despite risk-off sentiment in full swing in Asian trading on Monday, Gold price struggles to benefit, as markets resort to ‘sell everything’ mode. Risk-aversion is mainly triggered by growing concerns that the US economy is headed for recession, in the aftermath of a weak jobs report on Friday.
Nonfarm payrolls increased by 114,000 jobs last month after rising by a downwardly revised 179,000 in June, the US Bureau of Labor Statistics (BLS) said on Friday. The Unemployment Rate climbed to 4.3% from 4.1% in June while the Labor Force Participation Rate advanced slightly to 62.7% from 62.6%.
Mounting US recession fears prompted markets wager aggressive US Federal Reserve (Fed) easing in September. Markets are predicting 115 bps of cuts this year, with traders pricing in a 74% chance of the Fed lowering rates by 50 bps in September, compared to an 11.5% chance a week earlier, according to the CME FedWatch tool.
Risk-aversion heightened in Asia also after US Secretary of State Tony Blinken during the G7 meeting on Sunday that an attack by Iran and Hezbollah against Israel could start as early as Monday, Axios reported, citing three sources.
The US S&P 500 futures, a risk barometer, are down 0.55% on the day, as of writing. Asian markets are on a downward spiral, led by a 6% slump in the Japanese Nikkei 225 index.
Dovish Fed expectations are offsetting the risk-off mood, not allowing the US Dollar to attract some haven buying. The US Treasury bond yields also extend the previous week’s downtrend, weighing further on Greenback.
In light of a broad US Dollar weakness and negative US Treasury bond yields, the Gold price downside appears capped. Dovish Fed expectations will continue to underpin the non-interest-rate-bearing Gold price in the near term.
However, traders turn cautious and refrain from placing fresh bets on the bright metal in the lead-up to the ISM Services PMI data release while closely monitoring the developments on the Middle East geopolitical tensions. The headline ISM Services PMI is set to rise to 51.0 in July from June’s 48.8.
Meanwhile, US President Joe Biden will convene the National Security Council on Monday to discuss developments in the Middle East.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price needs a daily candlestick close above the previous record highs of $2,450 to successfully resume the uptrend toward the lifetime highs of $2,484, reached on July 17.
Ahead of that, Friday’s high of $2,478 could be challenged, if buyers regain poise.
The 14-day Relative Strength Index (RSI) is holding steady while above the 50 level, currently near 60, suggesting that the bullish potential remains in place for Gold price.
Conversely, Gold sellers need to crack the 21-day Simple Moving Average (SMA) at $2,411 to carve a sustained downside. Additional declines could challenge the confluence support near $2,370, where rising trendline support meets with the 50-day SMA.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Spot activities were limited for copper cathode units heading into the Chinese and Southeast Asian markets in the week to Tuesday June 25, with many participants in Asia leaving for the London Metals Exchange’s LME Asia Week in Hong Kong on Thursday June 27.
Overall trading sentiment stayed low, with participants gathering in Hong Kong for more direction in spot trading, Fastmarkets learned.
“All traders are being hit badly at current market price level, which is unprecedently at discounts, and demand in China stays weak,” a trader from Shanghai said in Hong Kong.
“The market is so bad, [and] people are looking for some ‘comfort’ by talking to peers, with no one making money under current conditions,” a second trader from Singapore said.
In the equivalent-grade (EQ) copper cathodes market, minimal spot activity was noted in both the Shanghai and Southeast Asian copper markets, Fastmarkets learned.
Fastmarkets assessed the weekly copper EQ cathode premium, cif Shanghai at $(60)-(50) per tonne on Tuesday, narrowing upwards from $(70)-(50) per tonne week on week.
Import markets into Europe remained quiet and disrupted, with a large amount of liquidity heading to the US due to better premiums and also higher exchange prices, according to sources.
“The market is still a bit disrupted with material being shipped to the US,” a second trader said.
Sources noted there was little liquidity due to low demand and a wide spread between selling and buying interest levels.
Sources agreed that there is not much activity in the market, which appears to be stabilizing after May’s historic highs.
One seller said the market “has stabilized for now, which I don’t think we have seen since pre-COVID days.”
But “there are some early warning signs that the market is looking to soften, so some renewed volatility showing by or before mid-July would not be a huge surprise,” they added.
“There has not been much activity in the market,” another trader said.
All source assessments were within the previous week’s range, with market activity confirmed on the high end.
LME copper inventory has risen by 51% so far in June; now at 175,475 tonnes from 116,000 tonnes at the beginning of the month.
Despite a stronger dollar weighing on the commodities complex, the LME three-month copper contract edged higher on Wednesday.
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The palladium price has experienced a great deal of volatility in 2024, starting the year at US$1,096 per ounce on the back of a long-term downward trend that began all the way back in 2022.
The metal declined steeply through the first two months of 2024, reaching a yearly low of US$859.15 on February 9. However, palladium saw momentum in March, trending upward alongside gold, silver and platinum.
At the start of April, the price of palladium was US$996.28, and it quickly accelerated to reach a year-to-date high of US$1,098 on April 9. However, the metal once again pulled back after hitting that level, plunging below the US$900 mark at the start of June. Palladium then surged to end the second quarter at US$963.50 on June 28.
The price has since regressed again, approaching a near yearly low of US$881 on July 29. Read on to learn what’s been driving palladium so far this year, and what factors may impact its performance moving forward.
Auto sector demand key for palladium price
Palladium and platinum are both used for investment, but have important industrial uses that claim the majority of demand. Auto sector demand has a strong impact on palladium in particular as it has few other uses.
According to a May report from the World Platinum Investment Council (WPIC), auto demand for palladium will remain steady in 2024 at 8.45 million ounces, while demand from all sources is projected to be 10.03 million ounces.
Palladium price chart, January 1 to July 30, 2024.
The WPIC is expecting palladium mine supply to remain relatively stable, with around 6.5 million ounces per year entering the market over the next five years. Meanwhile, the organization predicts that palladium recycling supply will increase from 2.64 million ounces in 2024 to 3.83 million ounces in 2028.
Overall, the WPIC is calling for palladium demand to outstrip supply in 2024 by 1.28 million ounces, and by 234,000 ounces in 2025 before entering surplus territory.
What factors drove palladium supply and demand in H1 2024?
The WPIC says the increase in recycled palladium supply is coming as a higher number of “PGM-rich vehicles” reach the end of their lives. These are expected to boost annual palladium recycling by over 1.3 million ounces by 2028.
Because platinum and palladium are interchangeable, manufacturers will often swap one out for the other as they try to find the best price. After breaking above US$3,000 in February 2022, palladium has been on a downward slide as auto manufacturers did exactly that, opting to use platinum, which was trading at around the US$1,000 per ounce level.
Though the two metals are now trading at near parity, there hasn’t been any desire to swap the two, even as platinum begins to edge higher. These dynamics are creating further headwinds in the palladium market.
In a mid-July platinum-group metals webinar hosted by CPM Group, Rohit Savant, CPM’s vice president of research, explained that given the costs associated with changing chemistries, the disparity between palladium and platinum prices will need to increase and be sustained before manufacturers consider a swap.
Savant went on to say that even though vehicle sales are expected to remain strong in 2024, gas-powered cars continue to lose market share to electric vehicles (EVs), which don’t require palladium.
This has been particularly impactful in the Chinese market, where there is higher EV demand.
“Even though you are seeing a substantial increase in vehicle sales, it may not necessarily translate into stronger demand for palladium,” Savant commented during the webinar. “That’s primarily because of the ongoing strength in the EV market share in China, and also the government incentivizing the Chinese market to either buy EVs or to buy smaller passenger vehicles, both of which are not supportive of palladium demand.”
What will happen to the palladium price in 2024?
Although some palladium demand comes from electronics production and investment, the auto industry is the metal’s primary driver. As increased recycling and higher supply begin to take hold, the price is not likely to increase; in addition, substitution isn’t likely to occur unless the price of platinum rises more substantially.
However, while near-term prospects don’t look strong, palladium’s low price may provide less risk-averse investors with opportunities, especially if the precious metal’s price continues to retreat.
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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
