Since the end of August, the overall commodity market situation has shown an upward trend (see Figure 1). The futures sector, including soda ash, glass, synthetic rubber, and styrene, has experienced a surge in prices. Driven by the expected reduction in international crude oil production, the energy and chemical sector has overall improved. The impact of high oil prices on inflation may increase the expectation of the Federal Reserve raising interest rates. On September 6th, after the news surfaced, the sustainability of current high oil prices and the upward space narrowed. Where will precious metal prices go in the future?
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Expected realization of crude oil production reduction
Saudi Arabia and Russia are fulfilling their production reduction commitments. Saudi Arabia’s voluntary production reduction measures of 1 million barrels per day will continue until September (the production reduction plan is evaluated monthly to determine whether to continue), and Russia’s crude oil exports will be reduced by 500000 barrels per day in August, with subsequent reductions of 300000 barrels per day. The OPEC organization maintains its previous production reduction policy of 3.66 million barrels per day, which is constrained by the production reduction of major oil producing countries, and the crude oil supply side continues to tighten. Global refinery profits are at a five-year high. The main risks on the supply side lie in Iran’s expectation of increasing production and the United States considering relaxing sanctions against Venezuela.
At present, the expected reduction in crude oil production has been fulfilled, and the news is positive with early overdraft, which has been reflected in the recent oil price, and the upward space in the later stage has narrowed. Currently, oil prices are in the high price range.
In the early stage, the correlation between precious metals and crude oil trends is strong. After the second half of 2022, precious metal prices have bottomed out and stabilized, and the magnitude of macro factors affecting them has begun to show differentiation. The trend of precious metals and crude oil began to converge in late March, but after mid April, the trend began to diverge again. Mainly due to the increased impact of risk aversion on the rise of precious metal prices. Recently, crude oil prices have rebounded, and precious metal prices have also followed suit.
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Comparison of precious metal gold and silver price trends in the past year
In 2022, the rise and fall trends of precious metal gold and silver have converged, but the decline in silver was deeper from April to August, and the recent recovery has been more significant. In December, silver continued its strong trend last month, and gold began to consolidate at high levels. In 2023, precious metal gold and silver have consolidated at high levels, with a slight decline in February. Since March, precious metal prices have started to rise. Silver prices began to decline in May, while gold remained relatively strong. In June, gold prices reached a high level and silver prices began to rise.
Future Market Forecast
At present, the price of precious metals has been fluctuating in the high range after hitting a 10-year high in the early stage. In the early stage, we expected that under the high inflation and high interest rate hikes, the pace of overseas economic recession may lead to a relatively strong sense of risk aversion, which is currently reflected in prices. Some central banks around the world have increased their holdings of gold reserves, which has also provided some support for gold prices.
However, in the near future, it is still necessary to focus on watching the Fed’s interest rate hike expectations. The next two weeks will see the release of US CPI data and the Federal Reserve’s interest rate resolution. Currently, inflation in the United States is still too high, and most officials do not support immediate policy easing. High oil prices have an impact on inflation. If inflation unexpectedly rises, further tightening policies will be supported, which may make the Federal Reserve inclined to raise interest rates. This will suppress the price of precious metals. In the short term, the upward space for precious metal prices has narrowed, and the probability of narrow range fluctuations has increased.
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