SunSirs: Expected Reduction in Crude Oil Production Fulfilled, and Where Are Precious Metal Prices Heading

Since the end of August, the overall commodity market had shown an upward trend. The futures sector, including soda ash, glass, synthetic rubber, and styrene, had experienced a surge in prices. Driven by the expected reduction in international crude oil production, the energy and chemical sector had overall improved. The impact of high oil prices on inflation may lead to a change in the Federal Reserve's interest rate hike policy. On September 6th, after the news surfaced, the sustainability of current high oil prices and the upward space narrowed. Where will precious metal prices go in the future?

Expected reduction in crude oil production realized

Saudi Arabia and Russia are fulfilling their production reduction commitments. Saudi Arabia's voluntary production reduction measures of 1 million barrels per day will continue until September (the production reduction plan is evaluated monthly to determine whether to continue), and Russia's crude oil exports will be reduced by 500,000 barrels per day in August, with subsequent reductions of 300,000 barrels per day. The OPEC organization maintains its previous production reduction policy of 3.66 million barrels per day, which is constrained by the production reduction of major oil producing countries, and the crude oil supply side continues to tighten. Global refinery profits are at a five-year high. The main risks on the supply side lie in Iran's expectation of increasing production and the United States considering relaxing sanctions against Venezuela.

As of September 6th, the expected reduction in crude oil production had been fulfilled, with positive news indicating early overdraft, which had been reflected in recent oil prices and narrowing the upward space in the future. As of September 6th, oil prices were in the high price range.

In the early stage, the correlation between precious metals and crude oil trends was strong. After the second half of 2022, precious metal prices had bottomed out and stabilized, and the magnitude of macro factors affecting them had begun to show differentiation. The trend of precious metals and crude oil began to converge in late March, but after mid April, the trend began to diverge again. The main reason was the increased impact of risk aversion on the rise of precious metal prices. Recently, crude oil prices rebounded, and precious metal prices had also followed suit.

Comparison of Price Trends of Precious Metals Gold and Silver in the Last Year

In 2022, the rise and fall trends of precious metal gold and silver converged, but the decline in silver was deeper from April to August, and the recent recovery was more significant. In December, silver continued its strong trend in October, and gold began to consolidate at high levels. In 2023, precious metal gold and silver consolidated at high levels, with a slight decline in February. Since March, precious metal prices had started to rise. Silver prices began to decline in May, while gold remained relatively strong. In June, gold prices were horizontal at high level and silver prices began to rise.

Market outlook

The price of precious metals has been fluctuating in the high range since hitting a 10-year high in the early stage. In the early stage, we expected that under the high inflation and high interest rate hikes, the pace of overseas economic recession may lead to a relatively strong sense of risk aversion, which is currently reflected in prices. Some central banks around the world have increased their holdings of gold reserves, which has also provided some support for gold prices.

However, in the near future, it is still necessary to focus on watching the Fed's interest rate hike expectations. The next two weeks will see the release of US CPI data and the Federal Reserve's interest rate resolution. Currently, inflation in the United States is still too high, and most officials do not support immediate policy easing. High oil prices have an impact on inflation. If inflation unexpectedly rises, further tightening policies will be supported, which may make the Federal Reserve inclined to raise interest rates. This will suppress the price of precious metals. In the short term, the upward space for precious metal prices will be narrowed, and the probability of narrow range fluctuations increases.

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