PGMs and gold beat fast reverse, but all-time highs still possible

“Things can’t just keep going up. At some point, equilibrium level has to be reached,” said Edward Meir, analyst with ED&F Man Capital Markets, adding palladium could still go higher since it was in a deficit prior to the crisis. “At some stage, all these commodity prices have to discount the fact that there’s no Russian output coming in no matter what commodity you’re talking about,” Meir added.

Spot gold fell 3.3% to $1,983.96 per ounce by 13:54 ET (1854 GMT), snapping a rally that took it near the August 2020 all-time high. U.S. gold futures settled down 2.7% at $1,988.20. “We got a little carried away with gold, but we’re at a much firmer footing than before this conflict, mainly because I still think the Federal Reserve and other central banks are going to be very cautious about how they reduce liquidity,” said Bart Melek, head of commodity strategies at TD Securities.

Spot silver fell 3% to $25.59 per ounce, after touching a near nine-month high on Tuesday. Platinum dipped 7% to $1,072.41. The reversal was also driven by profit-taking, analysts said. Equities rebounded as oil prices eased and investors snapped up stocks hammered by concerns over sanctions on Russia. Gold is considered a safe store of value amid such uncertainties.

“If the current instability in geopolitical terms continues, it’s very likely we’ll seek fresh all-time highs for precious metals,” said Michael McCarthy, chief strategy officer at Tiger Brokers, Australia.

The President of Ukraine, Volodymyr Zelensky, said he is open to a compromise with Russia. That single statement had a profound impact on multiple asset classes. Crude oil tumbled over 15% after reaching a 14-year high yesterday. Crude oil futures lost $14.17 yesteray, a decline of 11.46%, and are currently fixed at $109.53 per barrel.

Palladium slid as much as about 9% on Wednesday to lead a sharp reversal in precious metals, while gold shed over 3% as a retreat in oil prices helped riskier assets rebound after sharp declines spurred by the Ukraine war. Palladium was hitting a record high of $3,440.76 on Monday driven by fears of supply disruptions from top producer Russia.

The safe-haven assets such as gold and the dollar also sustained strong price declines. Given that the recent ascent in gold to just under the record high of $2088 was absolutely news and headline-driven, changes in those headlines will have a dramatic and profound impact on the direction and price gains or losses in gold. Silver lost 3.1%, and after factoring in today’s price decline of $0.84, it is currently fixed at $26.06.

Gold has moved on two major issues, the war in Ukraine and spiraling inflation. Higher inflation levels would be highly supportive of gold and make it likely that after this correction, it will return to rally mode and exceed the record high of $2088 achieved in August of 2020.

So, the question becomes in the case of gold, “has the rally in gold concluded?” The short-term answer is that it is very likely that we will see gold continue to drop in price as long as there is hope that a peaceful resolution can be accomplished through negotiations between Russia and Ukraine. However, the long-term answer is quite different.