In January, precious metal prices first fell and then rose, reaching a high level horizontally
According to the Commodity Market Analysis System of Business Society, as of January 31, 2024, the spot market price of gold was 481.10 yuan/gram, an increase of 0.17% compared to the spot market price of gold at the beginning of this month (January 1), which was 480.29 yuan/gram. During the month, the gold price first fell and then rose, and the overall high level fluctuated widely.
According to the Commodity Market Analysis System of Shengyishe, the average silver market price on January 31, 2024 was 5952.33 yuan/kg, a decrease of 0.25% compared to the average silver market price of 5967.33 yuan/kg at the beginning of this month (January 1).
From November 2022 to early February 2023, precious metal prices significantly increased. From March to the end of April, due to the impact of the US banking crisis, precious metal prices once again entered a period of skyrocketing. Silver prices began to fall in May, while gold remained relatively strong. In June, gold prices hit a high level and silver prices began to rise. After July, gold prices became stronger. In mid to late September, precious metal prices were affected by news from the Federal Reserve, leading to a high level correction. In October, due to geopolitical factors, the risk aversion sentiment rose and continued to rise. In early November, the high range was weak and fluctuated horizontally. At the end of the month, precious metal prices resumed, and silver saw a stronger monthly increase than gold. Silver prices slightly declined in December, while gold prices remained relatively strong. In January, precious metal gold and silver fluctuated horizontally at high levels.
Macro fundamentals for January
1. Markit’s manufacturing PMI unexpectedly expanded in January, and the service industry also rebounded.
2. The manufacturing PMI in the Eurozone rebounded beyond expectations in January, reaching a nine month high.
According to data released by the National Bureau of Statistics on January 31st, the domestic comprehensive PMI output index in January was 50.9%, an increase of 0.6 percentage points from the previous month, continuing to exceed the critical point, indicating that the overall production and operation activities of Chinese enterprises continue to expand. In January, the non manufacturing business activity index was 50.7%, an increase of 0.3 percentage points from the previous month, above the critical point, indicating that the non manufacturing industry continues to expand steadily. In January, the Purchasing Managers Index (PMI) for the manufacturing industry was 49.2%, an increase of 0.2 percentage points from the previous month, indicating a rebound in the level of manufacturing prosperity.
Logic of Precious Metals Market in January
Factors affecting the fluctuation of precious metal prices in January:
1. The policy factors of the Federal Reserve and the dynamic changes in market expectations of when the Federal Reserve will start cutting interest rates.
2. Geopolitical factors have intensified the geopolitical tension in the Middle East region.
3. Due to financial attributes, the willingness of speculative funds to take profits has increased after the price of precious metals reached a new high.
In January, we analyzed the reasons for the high level horizontal fluctuations in precious metal prices, as follows:
The price of precious metals is already at a relatively high level, and there is a profit taking motive in the capital market.
1. The Federal Reserve’s interest rate hike cycle is gradually coming to an end and entering a rate cut cycle, which logically favors interest free assets such as precious metals. According to CME’s “Federal Reserve Observation”, the probability of the Federal Reserve maintaining interest rates in the range of 5.25% to 5.50% in February is 97.4%, and the probability of a 25 basis point rate cut is 2.6%. The probability of maintaining interest rates unchanged by March is 33.1%, the probability of a cumulative 25 basis point cut is 65.2%, and the probability of a cumulative 50 basis point cut is 1.7%. But debt reduction has become one of the tightening policies.
2. Geopolitical factors such as the Red Sea incident provide an expectation of hedging demand on an emotional level.
In February, we believe that there is a high probability of sideways fluctuations in precious metal prices.
Geopolitical factors have led to sustained high demand for central bank purchases worldwide. It is reported that the net purchase volume of global central banks in 2023 was 1037 tons, only a decrease of 45 tons from the record breaking 1082 tons in the previous year. Geopolitical factors such as the Red Sea incident may lead to uncertainty in inflation data, and also make the future monetary policy path of European and American central banks uncertain. We preliminarily believe that the policy path may still remain ambiguous in the short term and gradually become clear after March. It is expected that there will be a high probability of sideways fluctuations in February.