Nicky Shiels

Gold prices will print another new record in 2024 as the Fed cuts interest rates and the global economy slows. The convinced Fed pivot is a Fed policy bias that is targeted to boost growth (rather than respond to disinflation) which will likely occur sooner rather than later. The Fed must maintain independence, but at the same time, earlier interest rate cuts provide enough time lag for easing to boost the real economy into US elections. These surgical rate cuts allow for a slow landing scenario and will boost gold in H1 2024, with upside risks to our base case outweighing the downside ones. The positive feedback loop of a peaked US dollar and peak US real yields against a backdrop of slower global growth, ongoing deglobalisation (and thus ongoing central bank dedollarisation), messy geopolitics, unsustainable global debt paths and a very under-owned investor community ensures gold will return as a safe diversifier, even at these higher prices. The world is simply short on trust and short on havens while the pool of safe havens is shrinking.

Top three drivers: Fed cuts; pace of central bank purchases; sensitivity of physical demand.

Silver will rally alongside gold, with bullish potential hinging on investor participation outweighing some mild contraction in industrial demand. Silver has more upside risk than gold, because 1) it is relatively cheaper versus its past price peaks, 2) it is more elastic to a weaker US dollar environment, 3) it is physically tighter with less readily available stocks, and 4) fundamental deficits are expected throughout this decade. Its high beta characteristic versus gold is attractive in a Fed-induced soft landing. While late cycle dynamics will see likely result in some mild contraction of ~5% in industrial demand from another record high in 2023, retail and investment can more than make up for this shortfall. Silver ETFs have shown they can accumulate ~30-40Moz in a couple weeks.

Overall, after months of being a forgotten asset class, investor focus in precious metals will return as the decline in the US dollar extends once the Fed pivots in 2024.

Platinum is expected to post another deficit (including investment demand) in 2024 which should remain quite similar to the deficit in 2023 of ~500Koz. Demand continues to be well supported by both automotive (higher light-duty vehicle sales, the acceleration of hybrids and continued substitution of platinum for palladium in gasoline autocatalysts, despite prices nearing parity) and industrial (glass and chemical) demand. A soft-landing outlook should marginally crimp demand, but akin to the thinking in silver, higher investment demand (for high beta precious products) should more than compensate for lower industrial/auto demand. The threat of larger than expected supply misses due to mine closures (especially at PA-rich North American mines and cuts at older Western Bushveld mines) AND secondary supply, which should remain weak, will support prices into 2024.

We are much more constructive about platinum (and PGMs) post-recession, where upside prices remain contingent on gold remaining in a bull market trend, the ignition of the macro recovery and the convincing pivot of fundamental balances from multi-year surpluses to multi-year deficits.

Structural headwinds in the form of ongoing substitution in gasoline vehicles (platinum was relatively cheaper, more readily available and less volatile than palladium), the recent rising market share of EVs (although US and European EV penetration rates have plateaued) and an expected surge in secondary supplies due to higher auto recycling, puts palladium on a path of rising surpluses. Still, palladium is expected to post another large deficit of ~-800Koz this year in the face of rising supply risks into 2024. There remains a disconnect between prices (which are extremely forward-looking and thus significantly lower versus recent peaks) and the current fundamentals (ongoing deficits with rising supply risks).

The outlook should remain fragile and unconvincing into a soft-landing backdrop. However, any incremental shift higher in demand or a quicker fall in supply will create tactical bullish opportunities and continued volatile trading in 2024, supporting our rather wide high-low range. That may stem from secondary supplies (which should remain weak into 2024 as recession fears constrain scrappage rates), the greater threat of closures of PA-rich mines and a sustained EV sales downturn, all of which remain underpriced.