Golden days ahead: Silver and copper to soar alongside Saxo's positive outlook for metals

My colleague Carl Capolingua has been writing about gold and silver’s trajectory all year - the latter gaining substantial interest recently as it crossed multi-year highs. But all precious metals have been buoyed by supportive economic data, central bank buying, and investors’ need for an alternative to stocks and bonds. 

One strategist who was on this case early - and who is doubling down on his view - is Saxo Bank’s Head of Commodity Strategy Ole Hansen. Hansen described 2024 at the outset as “the year of the metals”, and in his recent Q2 outlook argued that the “hibernation” period for non-precious metals may be about to end as well.

In this piece, we’ll look at Hansen’s original views, where he thinks the big four (gold, silver, platinum, and copper) will go from here, and what are the key tailwinds for these metals.

The year of the metals - January edition

Hansen’s view from the start of the year was that gold, silver, platinum, copper, and aluminium were all due for big rallies - but not necessarily for all the same reasons. 

It’s all about central bank policy for gold and silver - not just because real yields traditionally have an inverse relationship with the prices of these two metals, but also because central banks are often among the largest buyers of physical bullion.

“Gains driven by a trifecta from momentum-chasing hedge funds, central banks continuing to buy bullion at a record pace, and renewed demand from ETF investors, such as asset managers—they’ve been absent for almost two years amid the rise in real yields and increased carry costs,” Hansen wrote back in January.

And of course, rate cut expectations help too. After all, declining real yields (i.e. a decline in both nominal interest rates and inflation) is excellent news for precious metals prices. 

“...demand is likely to return, and with central bank demand continuing, potentially supported by a weaker dollar, we could see gold reaching a fresh record high at $2300. Silver may find additional support from the expected rally in copper and challenge the 2021 high at $30,” Hansen wrote back then. 

Well, gold has already breached that level, and silver recently hit an 11-year high. In his Q2 update back in April, Hansen maintained his year-end gold call of US$2,300/oz and slightly lowered his silver target to US$28/oz.

For copper, Hansen has this to say:

“Copper remains our favourite industrial metal, because there are expectations for robust demand, as seen in China this past year. This has kept exchange monitored stocks near a multi-year low,” he wrote in January adding that the preferred exposure is to direct prices itself through ETFs (rather than through miners).

“A successful break may, in our opinion, lead to a fresh record being reached later in the year.”

What will drive prices higher?

Five main reasons were highlighted by Hansen and his team:

• Geopolitical risks related to Russia/Ukraine and the Middle East are still playing a supporting role

• Strong retail demand in China amid the desire to park money in a sector seen as relatively immune to a struggling economy and property woes and the outside risk of the Yuan devaluing.

• Continued central bank demand amid geopolitical uncertainty and de-dollarisation, and not least, gold’s ability to offer a level of security and stability that other assets may not provide.

• Rising debt-to-GDP ratios among major economies, not least in the US, raising some concerns about the quality of debt. In other words, rising Treasury yields are not necessarily negative for gold as they raise the focus on overall debt levels and the sustainability of those.

• In addition, the focus is changing from the negative impact of lower rate cut expectations towards support from a reaccelerating inflation outlook.

As for whether gold and silver will continue to hit record high after record high this year, Hansen had this to say this week:

“We believe some patience is called for, not least considering the investors may need more time to adjust and adapt to current high price levels,” he wrote.

But we hasten to add…

Just as gold prices and gold miners have close but not perfect correlation, silver prices and silver miners don’t have perfect correlation either. As this collection of spot price ETFs and miners shows, the ETFs have performed generally quite strongly over the past year. But the performance of silver-linked miners have been far more volatile.

For more on silver stocks and the other ways you can play the silver market, you can read this piece from Carl here.

What happens next for copper and platinum?

Copper’s recent surge from US$3.65/lb to over US$5.00/lb has created an opportunity for prices to settle slightly, according to Hansen:

“Overall, the direction of copper is up, but following the latest surge to a record high - the timing of which occurred somewhat sooner than expected - a period of consolidation looks increasingly likely,” he wrote this week.

Of the major industrial metals that Saxo monitors, copper is second only to tin in terms of year-to-date performance.

As for platinum, he thinks the three year downtrend is over and that its next move is consolidation as well. Although the laggard among the industrial metals that Saxo tracks, the chart does look slightly more promising.

“Following a potential consolidation period, the next major level of resistance is not before the 2023 highs around USD 1,130 per ounce,” he said.