Prices for precious metals declined for the fourth time in the last five months in June. Precious metals prices fell 1.6% on a month-on-month basis in June (May: -2.2% month-on-month).
The U.S. economy continued to expand robustly in Q2, fanning inflationary pressures. As a result, the U.S. Federal Reserve decided to hike its key policy rate for the second time this year at its 12–13 June monetary policy meeting. Moreover, the Fed adopted a more hawkish tone and raised its median projection from three hikes to four in 2018, meaning two more rate increases are now the baseline scenario for this year. Higher interest rates in the United States are eroding the attractiveness of safe-haven assets, including gold and to a lesser extent platinum and silver.
High global political uncertainty, however, is providing some support to gold, while prices for palladium, platinum and silver are benefitting from tight supply and still-robust global growth. In this regard, a full-blown trade war between major players could threaten to derail the stellar trajectory of the global economy, reducing demand for key industrial commodities, including palladium, platinum and silver. The implementation of tariffs on USD 34 billion worth of Chinese goods imported to the U.S. and the immediate retaliation by China on 6 July are steps towards further economic uncertainty.
Looking ahead, prices for precious metals will be determined by geopolitical risks, although the effects will have an opposite impact on the commodities. While an uncertain global outlook will notably support gold prices, prospects of weaker global growth will dampen demand for industrial commodities.
Elevated geopolitical risks, healthy purchases of jewelry and robust industrial demand are expected to lead precious metal prices to rise 2.4% year-on-year in Q4 2018. The FocusEconomics panel sees prices increasing at a broadly similar pace of 2.3% year-on-year in Q4 2019.