- Tony Kim, head of global metals and bulk trading at Goldman Sachs, pointed out that the current macro environment is not conducive to gold reaching new highs. Rising nominal and real interest rates pose resistance to further breakthroughs above $4,400 per ounce.
- The bullish narrative in the copper market is suppressed by high inventories. Global copper stocks have risen to a nearly five-year high, with no signs of a tight spot market, maintaining a neutral price outlook for the next three to six months.
- Aluminum is experiencing a clear short-term supply-demand gap due to damage to some smelters caused by geopolitical conflicts in the Middle East. The spot market is expected to remain tight throughout the summer, with prices likely to test $4,000 per ton, offering a potential upside of about 10%.
Interest Rate Environment and Liquidity Pressure Cap Gold Prices
After significant volatility in the precious metals market in the first half of this year, gold holdings have fallen back to levels seen in the third quarter of last year. Goldman Sachs noted that despite institutional net sales of $40 billion to $50 billion, gold has remained around $4,400 per ounce, demonstrating its resilience as a safe haven. However, due to changes in the macro environment, the resistance to further price breakthroughs is increasing. Oil-producing countries in the Middle East have seen a decline in oil revenues, leading to a simultaneous reduction in dollar funds allocated to U.S. Treasuries and gold assets. Meanwhile, rising energy and food costs, coupled with the expansion of AI-related investments, have exacerbated inflationary pressures. If nominal and real interest rates are expected to rise simultaneously, the cost of holding gold will increase significantly, making the long-term target of $6,000 per ounce face substantial short-term resistance.
Speculative Fund Withdrawal and Macro Environment Limit Silver's Excess Returns
The silver market is currently driven mainly by investment demand. Earlier this year, expectations of potential U.S. tariffs led to a large amount of physical silver being shipped from London to New York, causing London inventories to decline. Stimulated by the temporary supply-demand imbalance, a large influx of highly leveraged speculative funds entered the market through derivatives and leveraged ETFs, driving up trading costs. As the market subsequently entered a deleveraging adjustment, some leveraged funds were forced to trigger mandatory liquidation after silver prices fell 25% to 30% from their highs, exacerbating downward pressure. Given that silver faces similar macro interest rate challenges and capital flow restrictions as gold, if macro tightening expectations persist, silver prices are unlikely to significantly outperform gold. The market's optimistic estimates of silver breaking $100 per ounce should be approached with caution.
Supply-Demand Fundamentals and High Inventories Challenge Copper's AI Narrative
Copper prices, heavily influenced by macro narratives this year, have seen their high valuations somewhat overextend the long-term demand expectations for AI infrastructure. Additionally, defensive hedging demand against U.S. tariff policies has prompted a large influx of physical copper into the U.S., leading to a rise in domestic inventories. However, from the futures market's term structure, there are no signs of extreme supply tightness. The global copper market remains relatively well-supplied, with global inventory levels reaching a nearly five-year high. If future tariff measures do not materialize as expected, the previously stockpiled inventories for hedging purposes may translate into real spot supply pressure, putting pressure on copper prices around $12,000 per ton. Based on this, copper prices are more likely to remain in a neutral range over the next three to six months.
Middle East Supply Disruptions Drive Aluminum Prices to a Short-Term Turning Point
In contrast, aluminum is currently the most clearly mismatched commodity in terms of supply and demand. Due to escalating geopolitical conflicts in the Middle East, several small smelters have suffered physical damage, leading to a temporary disruption in spot supply throughout the summer. As the damaged smelters are not expected to resume production until the end of this year at the earliest, the short-term spot supply gap is unlikely to be quickly filled. Goldman Sachs expects that with the continued tightening of the spot market, aluminum prices have the potential to test the $4,000 per ton mark in the short term, offering about a 10% upside from current price levels. However, investors need to be wary of the risk of a reversal once the supply chain recovers in the medium term. With new aluminum capacity coming online in countries like Indonesia, the global aluminum market could quickly shift to a surplus once Middle Eastern supply resumes early next year.
