In a January 3, 2023, Barchart article, I highlighted the price action in the precious metals sector in Q4 2022 and 2022. Gold, silver, and platinum prices rose in Q4, while palladium futures and rhodium prices declined. The precious metals sector rose 10.48% in the final quarter of 2022 and posted a 1.99% gain for the year.
In Q1 2023, gold was the upside leader, with silver edging marginally higher. However, platinum, palladium, and rhodium prices moved to the downside as the PGMs weighed on the sector.
Gold rallies in Q1 and probes over $2,000 per ounce
Gold edged 0.13% lower in 2022 but rose to a new record high of over $2,070 per ounce in March, continuing the bull market that began in 1999. In Q1 2023, gold was back in bullish mode posting a 7.82% gain, making it the best-performing precious metal.
The chart highlights gold’s rise in Q1 2023. Nearby COMEX gold futures settled at $1969 per ounce on March 31, 2023, with the June contract at $1,986.20. Gold was flirting with the $2,000 level in late March and was above that level at around $2,020 on April 11.
Silver edges higher in Q1
Silver is a highly speculative precious metal that tends to outperform gold on rallies and underperform during price corrections. While gold prices slipped marginally lower in 2022, silver posted a 2.95% gain. In Q1 2023, silver edged only 0.48% higher.
The chart shows silver’s slight rise in Q1 2023. Nearby COMEX May silver futures settled at $24.156 per ounce on March 31, 2023. Silver was higher at over $25 on April 11 in early Q2.
PGMs fall, with palladium and rhodium posting double-digit percentage declines
Platinum group metals are precious and industrial commodities. In 2022, platinum led the sector with an 11.13% gain.
Higher interest rates and the potential for a recession weighed on platinum and the other PGMs in Q1. Platinum declined 7.41% over the first three months of 2023.
The chart illustrates platinum’s decline in Q1 2023. Nearby NYMEX platinum futures settled at $994.10 per ounce on March 31, 2023, with the July contract at $1,003.10. The $1,000 level has been a pivot point for platinum futures that were slightly higher at the $1,010 per ounce level on April 11, as the metal once “rich persons’ gold” was edging higher.
Palladium prices reached a record high at over $3,380 per ounce in March 2022, when it ran out of upside steam. Nearby palladium futures fell 5.97% in 2022, with selling accelerating in Q1 2023, taking palladium 18.35% lower.
The chart illustrates the bearish price action in palladium that settled at $1,468 per ounce on March 31, 2023. At the $1,454 per ounce level on April 11, palladium futures were slightly lower since the end of Q1.
Rhodium is a PGM that only trades in the physical market. In 2022, rhodium prices fell 16.78%, settling at a midpoint of $11,900 per ounce on December 31, 2022. On March 31, 2023, rhodium prices were at the $7,000 level, plunging 41.18% for the quarter. At a midpoint of $7,900 on April 11, the rhodium price had recovered.
PGMs are inexpensive going into Q2 for three reasons
Platinum group metals are rare, with many industrial applications. Platinum, palladium, and rhodium are dense metals with extremely high melting points, making them critical ingredients in automobile, oil refining, petrochemical, fiberglass, and other catalysts. As industrial metals, PGMs are highly sensitive to economic growth or contraction.
Meanwhile, PGM production comes primarily from South Africa and Russia. In South Africa, production is primary. PGMs occur deep in the earth’s crust, making production costs high. Rising global inflation has only increased extraction costs. In Russia, PGMs are a byproduct of nickel production in the Norilsk region of Siberia. The war in Ukraine sanctions on Russia, and Russian retaliation against “unfriendly” countries supporting Ukraine, threaten supplies. PGMs are critical for many green initiatives as they clean toxic emissions from the environment. Platinum has been in a bearish pattern of lower highs and lower lows since reaching a record peak in 2008. Palladium and rhodium have been losing value since making highs in 2021 and 2022. The PGMs have declined to attractive price levels. Moreover, PGMs are far less liquid than gold and silver, increasing the potential for wide price volatility. Three compelling reasons support PGM prices after the price declines:
- The ongoing war in Ukraine supports prices, increasing the potential for worldwide shortages.
- Green energy initiatives to combat climate change support PGMs as they require the metals.
- Low liquidity can lead to significant price variance on the up and downside. A sudden herd of buyers could push prices substantially higher on a percentage basis.
PGMs offered value at the closing price levels on March 31, 2023.
Gold is a special case- Expect new record highs with silver following on the upside
Gold is the world’s oldest currency. While gold has some industrial applications, the world’s central banks validate its role in the worldwide financial system. Over the past months and years, central banks, governments, and monetary authorities have been net buyers of the metal. According to the World Gold Council, central banks purchased the most gold on record in 2022, and the buying is continuing in early 2023. The data likely underreports gold purchases as China and Russia are significant producing countries.
Source: Statista
The chart shows China is the leading producer, and Russia is tied for second with Australia. Government strategic stockpiles in China and Russia are national security issues, and the governments likely added to reserves by vacuuming domestic gold output. In early 2022, Russia declared that 5,000 rubles were exchangeable for one gram of gold to address sanctions. The declaration caused the ruble to move significantly higher against the U.S. dollar, the world’s reserve currency.
The bifurcation of the world’s nuclear powers is causing the dollar to lose some of its power as the dominant foreign exchange instrument. The dollar’s decline is a bullish factor for gold, the currency that transcends borders. Moreover, the highest inflation in decades supports higher gold prices over the coming months and years. In early Q3, gold was moving towards a challenge of the 2022 all-time high.
Silver has a long history as gold’s “little sibling.” Silver tends to outperform gold on a percentage basis during rallies as speculators flock to the metal because of its lower per-ounce price and its penchant for volatility. A new high for gold would likely cause silver to move appreciably higher. Silver was above the $25 per ounce level at the highest price since April 2022 in early Q2.
In a world where asset prices have suffered from rising interest rates, inflation, and geopolitical turmoil, gold, silver, and platinum group metals could continue to offer a safe harbor for investors and traders over the coming months and years. The gold rally is coming up on a quarter-of-a-century, with no signs that the bullish price action will end.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
