Gold analyst Sanjiv Arole explores the individual journeys of precious metals – gold, silver, platinum, and palladium – their highs and lows, and the factors influencing their future prospects.
Alexander the ‘Great’, Napoleon Bonaparte and Adolf Hitler had a burning ambition to dominate and rule the world. Ironically, all of them died without fulfilling their dreams. Napoleon and Adolf Hitler met their nemesis in erstwhile Russia while Alexander could not go through India and died on the way back home to Greece. Not quite dissimilar to the above, the precious metals family members too at times individually have tried to rule the roost. Way back in 1980 both gold and silver reached their then all-time high of $850 per ounce and $50 per ounce, respectively.
Silver came very close at $49.5 per ounce in April 2011 to surpass that mark but failed narrowly. Since then, the white metal has been floundering way off that mark going even below $20 per ounce levels. Currently, silver is hovering around $32 per ounce poised to march towards $50 per ounce levels again but, stalled by fears of impending recession in the US during 2025. Former top seed platinum, once the most expensive of precious metals, scaled its peak of $2,290 per ounce in March 2008. However, since then platinum has declined quite a bit and dipped below both gold and even palladium due to various factors. Palladium’s climb began somewhere after 2016, but first Covid-19 and in particular, the Ukraine war in February 2022 saw this PGM soar to an all-time of $3,440.76 per ounce in March 2022. Since then, palladium has declined to even below platinum at times. Now, palladium is just above platinum near $1,000 per ounce levels, playing snakes and ladders with each other.
In the meanwhile, gold not only scaled its new high of $1,921 per ounce in September 2011 following the financial meltdown in 2008 and recession thereafter, but continued to scale fresh all-time high levels in subsequent years. It took advantage of geo-political tensions across the globe at every given opportunity – be it Covid-19, Ukraine war, attack on Israel and its aftermath and so on – to soar further ahead. Even now (25th September 2024), gold is near its latest all-time high mark of $2,670 per ounce mark following the US Fed’s interest 50 basis points rate cut in its Federal Open Market Committee (FOMC) meeting mid-September. Will gold have a free ride without any bumps on its highway to glory? Is gold finally on a roll really? Will the $3,000 per ounce gold price prophesy made by gold bugs come true? Sooner than later! What’s in store for gold in the coming future?
The markets had a long wait ever since the Fed embarked on a high interest regime over two years ago. Thereafter, there was another year long wait even after rate hikes were stopped for the rate cut announcement to be made. Even after the rate cut announcement the gold price did not surge ahead like there was no tomorrow or like someone who had just won a jackpot and ran helter-skelter blindly. On the contrary, gold did go up only to consolidate itself and then move ahead again. Slow and steady has been the mantra for gold over the last few years. Currently, just below its fresh high of $2,670 per ounce, gold is poised to conquer unchartered territories.
The most remarkable aspect about gold in the last couple of years has been its ability to withstand and absorb strong headwinds in the face of a prolonged high-interest rate regime let loose by the US Fed. Jerome Powell’s relentless pursuit of taming inflation unleashed forces that flattened many but failed to deter gold from its forward march by much.
True, gold was helped on its path to glory aided and abetted by some factors. Since 2020, gold was first aided by the Covid-19 pandemic followed by the quantitative easings (QEs) by the US Fed coupled with recession in the US and elsewhere.
Then, as a high-interest rate regime was unleashed, geo-political tensions flared up across the globe, first with the never-ending Ukraine war in February 2022 and then after a terrorist attack on Israeli civilians in October 2023, the ever-escalating Israeli counterattack on terrorists and other entities hostile to Israel’s very existence. Apart from these battle fields, there were other pressure points around the world that have been simmering below the surface. Gold’s fundamentals have been solid with physical demand emanating from both India and China in recent times. With both hedging by miners and scrap not at unreasonable levels, gold is in the right place at the right to surge ahead. However, by far the biggest backers of gold been the central banks across the globe that have been on a record-breaking buying spree in the last couple of years at least. At present the stock markets have been scaling record highs daily. The cherry on top for gold would be when European investors return to gold and buy gold ETFs, as was the case during the pandemic.
In the US, speculation has been rife of an impending recession there in 2025. Now, an 11th September AI generated report showed a 61.9% probability of economic recession in the US by August 2025. Historically, the gold price has consistently advanced during recession. Though it isn’t guaranteed, there is a strong likelihood of a rise in the gold price. Investment in physical gold is always more beneficial investment during economic hardships. For, unlike other investments in gold, physical gold is free of controls by governments or central banks. However, the rest of the precious metals have always struggled in times of recession due to their usage as an industrial metal.
Silver, often dubbed as “the poor man’s gold”, is ready to ride gold’s coattails to soar higher in its quest to breech the seemingly insurmountable $50 per ounce target. Its best bet is to get into gold’s slipstream as the yellow metal surges ahead towards the $3,000 per ounce mark. Moreover, a recent report of technological advancement that could increase use of silver in EV batteries could act as a catalyst that could drive silver beyond the $50 per ounce barrier.
But a recession in 2025 could shatter silver’s dream. Platinum appears to be poised for a big leap in the not-too-distant future. For, the substitution of palladium with platinum for industrial usage is gathering steam since early 2022. The Ukraine war has further accelerated this shift due to technology changes as well. Then, just recently a report stated that the deficit in platinum was to be revised upwards. All of which could imply higher platinum price in future. But, so far, there has been no upward trend seen in platinum prices. A recession could well be the proverbial straw that breaks the camel’s back. Palladium is shrouded by uncertainty as not much data is available since the start of the Ukraine war. Even a whiff of recession could see this mainly industrial metal plummeting into an abyss.
Finally, can gold’s juggernaut be halted or derailed? Yes, but, if and only if all hostilities cease across the globe and the war-mongering nations follow the apostle of peace from the last century by shunning violence and become followers of ‘ahimsa’ overnight. Or someone like Trump becomes disciple of a few erstwhile PMs of India who preferred not to say much without pondering over it and even after dwelling on the issue, keep mum! To make matters worse, Israel has widened its air offence over Lebanon and is preparing for a ground assault. Meanwhile, Putin has warned the Western world that any attack on Russia by NATO could see Russia respond with Nuclear weapons.
Another downside for gold is that should the gold juggernaut speed away towards $3,000 per ounce, then gold could become too expensive in local currency. And in price-sensitive markets like Asia (India, China, etc.), demand for gold (jewellery, in particular) could dry up and scrap outflows may increase. However, demand for investment gold would partially offset the fall in demand. If European and Western world investors shun gold and opt for other investment options like cryptos or other riskier assets, then gold could stumble. Gold could face a major stumbling block if central banks do not continue to buy gold as in the past couple of years.
In early Asian trading gold touched a high of around $2,663 per ounce on 26th September 2024. Gold scaled its all-time high around $2,670 per ounce (intra-day) earlier in the week. Gold also reached its London pm fix all-time high of $2,661.45 per ounce on 25th September 2024. Then, the US Fed roadmap on interest rate cuts in the remainder of the year to aggregate in total is 125 basis points. This could only propel the gold price further forward en route to $3,000 per ounce and beyond. With a 61.79% probability of a recession by August 2025, it cannot be just wished away. Advent of a recession could adversely impact the industrial precious metals, namely, silver, platinum and palladium. A recession could cause stock markets to crash and the USD to weaken. All of which could see gold surge ahead.
Then, US sovereign debt of over $35.3 trillion is the biggest threat not only to the US economy, but even global economy per se. Further, a recession could take this debt to another level and pave the way for gold. As gold remains the simplest asset to own in order to protect your wealth and capital. In such a scenario gold is the only alternative as it is viewed as a global currency. Moreover, the US needs to spend $1 trillion just to service this debt. The US GDP growth is projected to grow by 2% in the next three years. However, service payments as a percentage to GDP are expected to rise 3.1% this year, way above the budgeted estimate. With no easy options available out of the fiscal mess, gold could show the way. Then, with China offering stimulus for its flagging economy, gold could be a huge beneficiary. All roads seem to lead to gold and nothing to halt its onward march towards $3,000 per ounce and further ahead. Gold appears to be on its way.
Gold could do well to remember that is many a slip between the cup and the lip … Gold should be cautious and follow the adage: Slow and steady wins the race.