The steep rise in precious metals prices this year has been by turns impressive and baffling.
Over the last week, gold has surged to a new record of almost US$2,740 ($4,130), representing a 12-month increase of nearly 40%. Silver has done the same, rising 50% over the last year to a 12-year high of US$33.89.
This, despite rising yields and a stronger US dollar. According to Danish investment firm Saxo Bank, the 10-year US Treasury yield has risen 17 basis points over the last week to 4.2%, while the Bloomberg Dollar Index gained 0.6%.
Combined with a more cautious, slower approach to rate cuts by Federal Reserve officials, this would have normally been bad news for precious metals — but this has not been the case.
Indeed, it could be the cumulative effects of demand for safe-haven assets, concerns over fiscal instability, geopolitical tension, and uncertainties surrounding the upcoming US election — all of which have gone a long way to propping up gold and silver prices.
“Additionally, rate cuts — by the Fed and other central banks — are reducing the cost of holding non-interest-bearing assets like gold and silver,” Ole Hansen, head of commodity strategy at Saxo, says.
“This environment is already spurring renewed interest in gold-backed ETFs, particularly from Western asset managers who had been net sellers up until May 2024.”
In the end, Hansen believes the strength of precious metals prices could be seen as a hedge against a potential ‘Red Sweep’, in which “one political party controls both the White House and Congress”.
Though Hansen did not say it explicitly, ‘Red Sweep’ appears to refer to an election outcome favouring the Republican Party.
“This scenario raises concerns about excessive government spending, pushing the debt-to-GDP ratio higher, while fueling inflation fears,” Hansen says.
“Investors are turning to precious metals as protection, even as expectations for lower rates and easier financial conditions fade, as highlighted by the four key charts tracking this exceptional divergence.”
According to the latest Reuters/Ipsos poll, Democratic US Vice President Kamala Harris held a marginal lead over Republican candidate Donald Trump — 46% to 43%.
Write to Oliver Gray at Mining.com.au
Images: iStock