The year 2024, often referred to as the “Golden Year” for metals, has seen remarkable peaks in prices for various metals such as gold, silver, copper, and others. However, recently, these precious metals have experienced a collective downturn. Contributing factors to this decline include decreasing expectations for interest rate cuts by the Federal Reserve and a slump in the manufacturing Purchasing Managers' Index (PMI) in overseas markets.

At the end of May, gold prices had a rocky path. After spiking above $2450 on May 20, they faced two weeks of consistent declines, now hovering around $2330. Initially, the dip in interest rate expectations had little impact on gold prices, but the recent continued nosedive has started to send shockwaves through the gold speculating community. Silver and copper, which also have industrial uses, have fared even worse—silver plummeting from around $33 to below $30. Meanwhile, copper was one of the best-performing base metals at the beginning of the year with a peak gain of 36%, but it too has fallen more than 10% over the past two weeks, raising concerns about whether the fundamentals can hold the copper prices at historical highs, where upstream demand is critical.

Traders and analysts that we spoke with expressed that the end of May has been challenging for both base and precious metals. While gold seems to be weathering the storm, silver is not as fortunate, and the determination of copper prices relies heavily on the recovery of the Chinese economy and the overall momentum of global manufacturing. The latter half of the week will shed light on the U.S. non-farm payroll data and the European Central Bank's interest rate decision, which will be crucial in painting a clearer picture of the rate cut prospects in both regions and marks significant risk events for the week.

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In May, for the first time in a while, gold prices saw a significant downturn.

Remarkably, gold prices exceeded historical records this May, reaching a peak of $2450. According to recent data, central banks around the globe have emerged as the predominant gold buyers, with a whopping annual gain surpassing 20%. The People's Bank of China notably increased its gold reserves by 60,000 ounces in April, marking an impressive “18 consecutive months” of accumulation.

Nevertheless, in the last two weeks, gold experienced a substantial drop of nearly $100, catching those who were betting on rising prices off guard. David Scutt, a senior market strategist at StoneX, explained to us that the recent fall in gold prices is mainly attributed to profit-taking actions. “After a brief surge past April’s historical peak, gold couldn’t hold above that level. This created a window of opportunity for investors to lock in gains following the robust performance in the preceding months,” he added.

Furthermore, Jerry Chen, a senior analyst at GAIN Capital, pointed out that the technical indicators for gold are currently unfavorable. He indicated that the two elongated upper shadows on the monthly chart and the bearish engulfing pattern on the weekly chart suggest that gold prices may continue to retreat. The 50-day moving average may struggle to serve as support, and should that level be breached, it could challenge the $2280 mark. Should this double-top structure be completed, it could signify a larger-level correction. He asserted that the key to determining the trajectory of gold and the U.S. dollar will rest in this Friday's non-farm employment data.

Chen noted that the implied volatility for gold this week is at 14.8%, roughly on par with the previous week, suggesting that prices could likely oscillate between $2278.3 and $2375.5.

Amidst these fluctuations, market expectations regarding the Federal Reserve’s 2024 interest rate cuts appear to lack clarity as projections indicate cuts of less than 40 basis points. This uncertainty regarding the timing of any cut is also seen as a significant detractor for gold prices.

In April, the U.S. economic data largely fell short of expectations, with key metrics regarding employment, CPI, and retail sales all underperforming relative to market predictions. The core personal consumption expenditures (PCE) index is now below 3% and seems poised to continue dwindling. However, the minutes from the Fed’s May meeting conveyed contrasting impressions, as decision-makers appeared to harbor doubts concerning whether the US economy was weak enough to necessitate a rate cut. The hawkish tone of the minutes sharply contrasted the comments made by Fed Chair Jerome Powell afterward.

Recent data also revealed a surprising jump in the U.S. May consumer confidence index to 102, leading many to anticipate that interest rate cuts this year might be in jeopardy, given such an uptick was significantly above the expected 96, with the April figure revised up to 97.5.

The ISM manufacturing PMI for May released on June 3 unexpectedly dipped to 48.7, falling below the boom-bust line for two consecutive months. The Atlanta Fed’s model estimated a GDP growth of 1.8% for the second quarter, which is substantially lower than the previous forecast of 2.7%. While this may offer temporary support to gold prices, fluctuations in recent U.S. data make it difficult for these figures to alter market expectations entirely.

Arend Kapteyn, global chief economist at UBS, shared insights with us, explaining that the Fed is invariably waiting for inflation to improve consistently over several months. This clearly suggests a low likelihood of rate cuts before September, as there wouldn’t be adequate time for obtaining sustained improvement in inflation data.

Since the Fed is a central bank that balances two main objectives—controlling inflation and achieving full employment—weakness in one set of relevant data could trigger a rate cut in September. Nevertheless, Kapteyn added, “We indeed agree that the Fed should exercise patience in waiting for inflation data to improve before making any cuts, especially since there is a concern that acting prematurely could lead inflation expectations to become unanchored.”

In contrast to the losses of less than 5% in gold, silver and copper prices have seen declines of roughly 8% and 11%, respectively, in recent weeks.

Earlier this year, silver outperformed gold; for example, in the week of May 17, silver surged by 11.8%, surpassing the $30 per ounce mark, marking a cumulative gain exceeding 30%—far outpacing gold’s nearly 20% increase, thereby establishing itself as one of the year's top-performing major commodities.

“In the short term, it might face some resistance—such as a rebound following an oversold dollar or profit-taking actions. Yet as long as it doesn’t breach the $28.80 mark, it could continue its upward momentum. Successfully stabilizing above $30 would open the gates to a potential rise towards $35,” a trader from a foreign investment bank remarked back then.

However, as expectations for rate cuts fell sharply, silver took a nosedive as its industrial attributes also weighed down under deteriorating global economic data.

Scott commented that silver is more susceptible to recent downward movements compared to gold; early last week, it outpaced other prices, exceeding the upward trend observed since early May.

“With momentum indicators declining post an extravagant streak, silver now appears fatigued. It gives the impression that it must descend before it can ascend again, enticing more buyers to enter at more appealing price points,” he mentioned. He pointed out that in the event of a rebound, $30.96 and $30.08 are two potential trading targets; currently, selling at rallies or shorting breaks is favored.

Regarding copper, despite its vigorous start to the year spurred by a manufacturing recovery and tighter supply in the context of energy transition demands, its performance in the latter half has been less favorable. On May 20, Comex copper prices hit a then-historic high of $5.20 per pound ($11,464 per ton), while the LME March contract briefly reached a new high of $11,104 per ton. Early calls from Goldman Sachs suggested a target price of $12,000 for copper. However, since late May, copper prices have sharply slumped.

“Although market players are optimistic regarding the copper market, especially concerning global green transitions and copper shortages tightening mid to long-term fundamentals, prices have faced persistent questioning after the fast-tracking rises as concerns about short-term realities remain. With a tug of ‘strong expectations’ and ‘weak realities,’ copper prices are likely to oscillate in the range of $9500 to $10,500 per ton in the coming period,” said Fu Xiao, head of the commodity strategy team at Bank of China International, in her conversation with us.

She noted that while the potential for copper prices to reach new highs cannot be ruled out, upward movements are likely to provide opportunities for profit-taking until downstream demand significantly improves and expectations for Fed cuts get solidified.

The recovery of China’s economy also plays a significant role regarding copper as it accounts for nearly 50% of global consumption. In the future, will “strong expectations” turn into concrete realities? Since March, both the U.S. and China's PMIs have steadily entered into expansion territory. On the supply side, due to ongoing reductions in concentrate supplies, the extreme tightness in the concentration market persists. On March 28, China's smelting procurement group held a meeting advocating a production cut of 5% to 10% (albeit this has not been realized). Recent improvements in macroeconomic indicators and supply reductions have drawn back some previously cautious institutional funds and algorithmic trading funds into the copper market. Thus, the pace of recovery in the Chinese economy following stimulus policies will be pivotal.

The commodity market is poised for a robust return in 2024, an essential factor being the potential initiation of rate cut cycles by the Fed. However, inflation in the U.S. has been slowly declining over recent months. The Fed’s committee acknowledged in the May meeting statement that “recent months have seen a lack of progress in achieving the inflation target below 2%,” making rate cuts evidently more challenging. Traders broadly perceive that as the Fed continues to delay rate cut expectations, the short-term upward movement for copper is likely limited.