Suki Cooper

We expect gold to test new highs in 2024, supported by a solid downside floor. Gold has worn many hats over the past year: a safe haven amid geopolitical tensions, an inflation hedge, a recession hedge, a hedge against financial market uncertainty and a barometer for rate-cycle changes. Investor appetite has already shifted at the start of 2024, with markets positioning for a soft landing and anticipating rate cuts. However, we believe gold may have got ahead of itself in pricing in rate cuts, and while we believe the macro environment is set to turn more supportive for gold, we do not think this is imminent.

Gold is likely to continue to fluctuate between its commodity and currency status in 2024. The macro environment remains pivotal in terms of determining the upside risk, and our expectations for central banks to cut rates, the US dollar to soften and real yields to ease creates a powerful cocktail to propel gold prices to test new highs.

By far the most significant factor for gold price action in 2024 will be official-sector flows, in our view. Key determinants to track for the coming year include: central bank activity; tactical interest looks poised for rate cuts; ETF net redemptions.

While silver’s supply and demand balance looks set to tighten in 2024, plentiful above-ground stocks are likely to limit sharp upside risk. Notably, much of the restocking that previously drove demand appears to have come to an end. On a positive note, silver has reverted to taking its cue primarily from gold rather than copper, as had been the case in 2022. Silver is unlikely to be a beneficiary of safe-haven demand to the same extent as gold; but equally, concerns over the impact on industrial consumption of a slower China demand recovery are also likely to be less of a drag at the margin. The market pricing in a soft landing bodes well for silver, as does a macro environment where interest rates start to fall. While the gold-silver ratio could remain elevated in the near term, we expect it to start to fall in the next 12 months, particularly as electrification of vehicles, photovoltaic (PV) demand and the drive for green energy support silver industrial consumption over the long run.

We maintain a positive outlook for the platinum market, but the evolution/trajectory of the positive drivers is likely to remain slow. We expect the market deficit to persist in 2024, but plentiful above-ground stocks to reduce any immediate urgency to buy platinum. Notably, much of the above-ground inventory is in China, which remains a price-elastic consumer of platinum, increasing imports on price dips, in turn supporting the platinum market floor. However, good inventory availability has limited upside price spikes. The three key factors to watch in 2024, in our view, are: (1) Supply production cuts, given the bulk of the cost curve is trading in loss-making territory; (2) The ongoing slow recovery in secondary supply, which is supporting a tighter market; and (3) Continued substitution of palladium, despite prices moving towards parity. While PGM prices moving towards parity usually stokes the conversation of switching between metals, in the current environment, we see substitution away from platinum as a low risk; in contrast, faster-than-expected adoption of pure EVs is a higher risk to autocatalyst demand in the near term.

We see a high probability that the palladium market swings into a surplus in 2024; the magnitude of the surplus will depend on (1) the extent of any cost-related production closures; (2) the pace of recovery in PGM recycling; and (3) substitution in and market share of internal combustion engines (ICE). We also believe that this year platinum and palladium will increasingly trade close to parity, with palladium forgoing its premium by year-end. We believe the market has overestimated the pace of decline of palladium usage in autocatalysts. We think that even with the switching in favour of platinum, the absolute number of vehicles containing an autocatalyst will see demand stabilising rather than falling sharply in the coming quarters. Palladium faces similar supply challenges as sister metal, platinum, which is likely to limit the size of any market surplus. If supply losses exceed expectations or autocatalyst demand surprises to the upside in light of inventory levels normalising, short-covering activity could see palladium prices spiking higher, at least in the short term.