The week commenced with a robust appetite for commodities, spearheaded by gold’s ascent to a new record high, reaching $2450 per ounce on Monday. Despite a resurgence in US yields and indications from Federal Reserve members favoring prolonged high interest rates, gold maintained its upward trajectory.
Federal Reserve officials expressed reservations about the need for immediate rate cuts, citing concerns about inflation and its sustainability. However, the possibility of protracted high interest rates in the US has sparked apprehensions regarding the country’s debt burden and the sustainability of interest payments, bolstering the case for gold as a hedge.
Geopolitical tensions worldwide, including conflicts in Ukraine and the Middle East, strained relations between China and the West, and heightened uncertainty following the death of the Iranian President, have further fueled demand for gold as a safe-haven asset.
Additionally, robust central bank buying has significantly bolstered gold holdings, with reports indicating a tripling of holdings since Russia’s invasion of Ukraine.
Silver has also witnessed a notable rise, outpacing gold and reducing the gold-silver ratio to its lowest levels since January 2022. The reflation trade, driven by increased industrial demand and clean energy initiatives such as solar panels, has propelled silver’s gains.
Copper futures joined the rally, hitting record highs on Monday, supported by robust demand and constrained global supply. While crude oil struggles to breach the $80 per barrel resistance, factors such as Middle East tensions, Chinese industrial production, and OPEC’s production constraints continue to underpin prices.
However, rising oil prices raise concerns about inflation and prompt central bank scrutiny, potentially tempering the reflation trade. Natural gas prices have finally gained momentum, reflecting growing demand.
The commodity rally bodes well for mining stocks, particularly those listed on the FTSE 100, poised to benefit from the unfolding reflation narrative. Meanwhile, the Nasdaq 100 reached a new all-time high, driven by gains in Nvidia ahead of its quarterly earnings announcement.
