Has the Investment Logic for Precious Metals Changed? Heraeus Analyst Warns: Economic Recession May Be Coming

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Source: Cailian Press

Cailian Press, March 17 — (Editor: Ma Lan) The conflict between the U.S. and Iran will not change the logic of precious metals’ price increases, but analysts warn that the recession triggered by the U.S.-Iran conflict has that potential.

Herlitz Metals Analyst pointed out that when geopolitical tensions and oil price fluctuations trigger a recession, precious metal prices tend to weaken significantly. The two oil crises of the 1970s occurred during a bull market for precious metals; after the crises, prices continued to rise, but as the U.S. economy entered recession, the trend of precious metals prices began to reverse.

The direct impact of oil price shocks on precious metals is limited. For example, during the 1990 Gulf War, when the precious metals market was in a bear phase, the war and resulting economic downturn caused prices to continue falling. Similarly, during the 2003 Iraq War and the 2022 Russia-Ukraine conflict, although oil prices surged significantly at the time, overall economic strength kept precious metals prices stable.

Analysts emphasize that it has been six years since the last recession. Typical business cycles last five to six years, increasing the risk of an economic downturn, which could drag down precious metals prices.

Market Divergence

Herlitz noted that soaring oil prices are expected to boost inflation, leading the market to adjust the likelihood of interest rate cuts. Currently, market forecasts show that the Federal Reserve is most likely to cut rates once this year, with a significantly lower chance of two or more cuts.

In this context, investor enthusiasm for precious metals has waned. However, logically, different precious metals are affected differently by economic recessions, which could lead to a clear divergence in their future trends.

Among them, gold may be the best store of value. Analysts believe that the long-term factors supporting gold prices remain intact, so there is still upward momentum. Additionally, historical cases show that gold often acts as a safe haven during recessions, with returns often outperforming stocks and other assets.

However, Walsh Trading Co.'s Co-Head of Commercial Hedging, Sean Lusk, pointed out that gold prices have largely moved in sync with the stock market over the past three years. Now, with the stock market experiencing a sharp decline, gold prices are also likely to fall. He predicts that in the short term, gold could drop below $5,000 per ounce, with a slight rebound followed by further declines.

Meanwhile, due to the broader industrial use of platinum group metals and silver, economic recessions are expected to have a greater negative impact on their prices compared to gold. Silver could fall back to around $80 per ounce. Herlitz analysts stated that if this support level is broken, silver could decline to previous lows of $72 to $64 per ounce.