Market will focus on Nvidia and inflation

The gold bulls have been on a rampage since February this year, with gold trading at ATH. The catalyst for this rally has been favourable macroeconomic data, with Fed Chairman Jerome Powell hinting that the Fed is ready to adjust policy. With 100bps of rate cuts priced in for the rest of 2024, markets are clearly pricing in a macroeconomic sunshine scenario. However, one precious metal, platinum, seems to have been left in the shadows. We see an opportunity for a long-short play, with "overbought" gold easing towards "underbought" platinum.

For non-interest-bearing assets such as gold, consumption figures, employment rates and wage growth are all factors that contribute to futures prices. More specifically, inflation and expectations of future inflation are negatively correlated with these prices. With inflation comes higher interest rates, raising the alternative cost of investments such as gold. The annual inflation CPI-rate in the US slowed for the fourth consecutive month to 2.9% in July, below the expected 3.0%. Notable components that eased included prices for both new and used cars and trucks. The corresponding inflation figure for August will be released on 11th September. Expectations remain upbeat, with a University of Michigan survey suggesting that inflation will remain at 2.9%. This contrasts with the typical seasonal pattern of August, being slightly hotter than July.

It is clear why gold and other metals such as copper and silver have rallied since February this year. Looking at the RSI for all three, they are overbought on a 1-year basis, even after the volatility spike in early August. While silver and copper have seen some profit-taking, gold has been steady. There are several macroeconomic triggers in the coming weeks that will test this trend. Focusing on the US: GDP Growth on Thursday the 29th, Core PCE and Personal Income & Spending on Friday the 30th, Non-Farm Payrolls and Unemployment Rate on Friday the 6th and Inflation on Wednesday the 11th. Given the overwhelmingly positive sentiment, a poor reading could potentially scare off less confident gold investors and cause a short-term rout in prices.

Platinum futures, on the other hand, have not enjoyed the same bullish sentiment. Mainly used in automobiles, along with the metal palladium, in catalytic converters, and platinum is also used in other industries such as jewelry. On the demand side, platinum is stable, with consumption of the metal expected to fall by just 1.3% in 2024. By comparison, primary supply is expected to decline by 2.0% over the same period. This ratio was established after the post-covid inflation spike, when carmakers were uncertain about future prices. As a result, they bought more platinum, palladium and rhodium than they needed to stockpile and hedge against expected price increases. As it turned out, the price rise never materialized. Instead, production failed to meet demand and platinum stocks fell by 598,000 ounces.

All in all, the gold bull run has been intense and partly fueled by increasing confidence that the Fed will start to take the brakes off. Platinum, on the other hand, has been suppressed as car sales, both electric and diesel, have remained flat to negative. With gold looking overbought and at risk of a short-term pullback should macroeconomic data go the wrong way, platinum looks a relatively attractive investment.