Here's why the bullish trend in precious metals may last longer

Precious metals were only partly affected by the slowdown in the commodities sector. The Bloomberg sector index declined -1.7% last week, continuing the slight correction that had started the week before. However, underlying economic conditions remain favourable for gold, which is benefiting from a backdrop of sluggish economic growth and moderating interest rates and will try to remain in the $2,400 an ounce area after recent highs at $2,484.

Silver is the best-performing precious metal this year, with a 22 per cent return, compared to 13 per cent for gold, buoyed mainly by its industrial qualities, but also by rising demand and a supply that remains tight. "Industrial demand for silver has reached new highs, driven by the photovoltaic sector and the metal's growing use in 5G and car electronics," comments Nitesh Shah, head of commodities and macroeconomic research at WisdomTree. "Photovoltaic installations have far exceeded all forecasts from early 2023 and further capacity increases are estimated to reach another record this year.

 Demand for silver is also expected to benefit from the technological breakthrough that has led to the mass production of new, higher-efficiency solar cells that use more silver loading. "In the automotive sector, the increased use of electronic components and investments in battery charging infrastructure will continue to drive demand for the metal," Shah continues. "In 2023, demand for silver from consumer electronics was relatively weak, but with the expansion of d+i artificial intelligence applications in 2024, we expect it to increase. Looking at valuations, "silver will rise more than gold with 15.8 per cent growth over the year, compared to 11.1 per cent for the yellow metal," the WisdomTree manager points out. Our models show that every time gold prices rise by 1%, silver historically rises by 1.4%. In line with gold, silver could give back some of its gains before rising, as both metals are awaiting Federal Reserve rate cuts."

Certainly the new phase of monetary easing will support gold prices: looking at government yields, both nominal and real, shows a bearish trend that is positive for the yellow metal. "The Federal Reserve and other central banks now appear to be on the verge of a round of cuts that would see lower nominal interest rates and potentially lower real interest rates as well," explains Chris Mahoney, investment manager gold & silver at Jupiter Am. Gold tends to move inversely to real interest rates. This means that investors who expect lower real interest rates could result in a higher gold price'.

A refuge asset par excellence, geopolitical tensions, especially in the Middle East, could also support demand. Gold has also seen very robust demand from central banks, with purchases likely to continue in the future. Precious metals also offer good investment protection, given their independence from any government or central bank, and have always proven to be reliable stores of wealth, also as an element of diversification and risk reduction.