Gold and Silver At Record Levels: More To Come?

Key Concepts

• Gold Prices: Current trading levels, historical trends (2000-present), factors influencing price (political, economic, social), long-term outlook.
• Silver Prices: Current trading levels, short-term trade recommendations, investment demand, supply tightness concerns.
• Platinum Prices: Recent sharp rise, cyclical vs. secular shifts, drivers of price increase (investor demand, dealer inventory), fabrication demand, South African supply pressures, Chinese import data.
• Palladium Prices: Correlation with gold and silver, short-term phenomenon expectation.
• US Economic Data: GDP (final estimate, components), industrial production (level, year-over-year, month-over-month), personal income and expenditures, PCE inflation.
• Chinese Platinum Imports: Reported surge in April/May, year-to-date data, comparison to previous year, inventory building vs. consumer demand.
• Market Analysis: Cyclical vs. secular trends, importance of long-term outlook, impact of economic and political conditions.

Market and Economic Outlook

Gold Prices: Gold prices are currently trading just below $3,800, with the December COMEX contract having briefly surpassed this level earlier in the week. The active December contract, which holds significant open interest and trading activity, is being closely monitored. The price of gold continues to rise, and this upward trend is expected to persist. While short-term investors may be concerned about potential profit-taking or pauses, longer-term investors are less likely to be significantly impacted.

Historical Gold Price Trends: Long-term price charts dating back to 2000 reveal a slow rise in gold prices during the first five years of the century, accelerating around 2006-2007. A peak was reached in 2011, followed by a five-year decline until late 2015/early 2016. After a period of sideways movement for several years, gold prices have begun to rise again. The extent of this future rise is contingent upon political, economic, and social conditions globally and within the United States. The current expectation is that these conditions will remain unfavorable for years to come, thus supporting higher gold prices.

Anecdotal Evidence on Price Volatility: Jeffrey Christian shared an anecdote from his early career in 1979, when he began covering precious metals. At that time, markets were less developed. He recalled a conversation with George Clever, a highly-rated gold mining analyst, in September 1979. Gold prices had risen to around $300, and many believed the market was overvalued. Christian predicted a price of $500 by April 1980, a forecast met with skepticism by Clever. By January 1980, the price had peaked at $850, prompting a call from Clever. Three months later, in April 1980, the price was indeed $500, highlighting that while prices rise, they also fall, and cyclical trends are important to observe.

Long-Term Economic and Market Projections: CPM Group is in the process of updating its quarterly long-term 10-year economic outlook and its long-term gold and silver supply, demand, and price projections. While the third-quarter update might miss the end of September deadline, the work is ongoing. The firm's assessment of economic and political problems indicates their continuation for a longer period than previously projected. The process of quantifying these changes and updating projections has been a focus of the week, with completion anticipated next week.

Silver Prices: Silver prices have also been on the rise, reaching approximately $45.90 earlier in the morning. A recent short-term trade recommendation from CPM Group had projected a spike as high as $25.90, a level that has now been achieved. A new trade recommendation is expected later today or by Monday at the latest. Silver's strength is attributed to robust investment demand. While reports of tightness in the market exist, CPM Group is not observing genuinely tight supplies. Claims of difficulty sourcing thousand-ounce bars are refuted, with CPM Group stating they can readily supply them. The current market dynamics primarily reflect stronger investment demand and shifts within investment product markets.

Platinum Prices: Platinum prices have experienced a sharp increase, reaching new cyclical highs. The current price levels are comparable to those seen during the six-month strike in South Africa's platinum mining industry in the first half of 2014. This level is significant as it prompts a reassessment of whether the price surge from $1,000 in May to $1,500 (a more than 50% increase) represents a secular shift (indicating sustained higher prices) or a short-term phenomenon. The increase, which began in June, has been primarily driven by shorter-term investor and speculator demand, as well as inventory building by dealers. Fabrication demand has not shown significant strength. While there are supply pressures reported from South Africa, CPM Group does not perceive a surplus of newly refined platinum relative to fabrication demand, nor do they see significant deficits. The upward price pressure is clearly from investor buying.

Chinese Platinum Imports and Jewelry Demand: A key factor contributing to investor interest in platinum has been the reported sharp increases in Chinese platinum imports in late May and early June. However, data presented indicates that while imports rose sharply from a low point in February, the figures for April, May, and June are comparable to the same months in the previous year. On a year-to-date basis through August, platinum imports into China are down 16% compared to the same period in 2024. While still substantial (2 million ounces year-to-date, down from 2.1 and 2.5 million ounces), it does not represent the surge suggested by marketing materials circulated in May. This data serves as a "reality check." Furthermore, reports of significant platinum jewelry purchases in China are being interpreted by major importers as primarily inventory building by manufacturers and jewelers, rather than strong end-consumer purchases. This suggests that existing inventories are being replenished.

Palladium Prices: Palladium prices have also risen sharply. While CPM Group had anticipated prices might remain below $1,200, they now believe palladium will not decline in an environment where gold and silver are approaching record levels and platinum is at a critical juncture. However, the firm views the current palladium price surge as likely a short-term phenomenon.

US Economic Data Analysis

US GDP: The final estimate for US Gross Domestic Product (GDP) for the week was 3.8%, an upward revision from the earlier estimate of 3.3%. This figure is broadly in line with GDP growth observed over the last quarter-century and shows an improvement from the negative contraction in the first quarter. However, a breakdown of the second-quarter GDP reveals that the significant increase was primarily driven by a drop in imports. In the US GDP calculation, a decrease in imports is treated as a positive contributor to overall economic activity. While consumer spending also contributed, it was approximately one-third as strong as the decline in imports. Business investment, on the other hand, continues to contract, which is viewed as a negative indicator. Government expenditures as a percentage of total expenditures have also been contracting, as have exports.

Industrial Production: The actual level of industrial production, tracked historically since 1920, has been relatively flat but at high levels, suggesting no inherent weakness in the industrial sector itself. However, when viewed as a percentage change from a year ago, industrial production shows some weakness, with several months of decline observed over the past year. This weakness is more pronounced when compared to inter-recessional periods over the last 35 years. While the most recent year-over-year data for industrial production was positive, the month-over-month data indicates relative weakness, signaling potential clouds on the horizon.

Personal Income, Expenditures, and PCE Inflation: Data released for personal income and expenditures, along with Personal Consumption Expenditures (PCE) inflation figures, showed that in August, consumers spent more, but their disposable income remained flat, leading to a contraction in the savings rate. This indicates a loosening of consumer spending in June, July, and August after a period of weakness in April and May. The PCE price inflation factor remains elevated relative to the Federal Reserve's target, which is likely to make most members of the Federal Open Market Committee hesitant to lower interest rates too quickly or too far.

Conclusion

The current market environment is characterized by rising gold and silver prices, driven by a confluence of economic and political uncertainties. Platinum has seen a significant, albeit potentially short-term, surge fueled by investor demand, with Chinese import data offering a more nuanced perspective than initially reported. While US economic indicators show some resilience, particularly in GDP due to import declines, underlying weaknesses in business investment and month-over-month industrial production suggest potential headwinds. Elevated PCE inflation is likely to influence the Federal Reserve's monetary policy decisions. CPM Group's long-term outlook anticipates continued economic and political challenges, supporting higher precious metal prices, and is in the process of updating its projections accordingly.