European Natural Resources Fund: Gold is expected to outperform the US stock market in 2024. Next year's trend will depend on whether emerging market demand can be sustained.

European Natural Resource Fund Commodity Discovery special analyst Li Gangfeng said in an article that the price of gold in US dollars rose by 25.5% in 2024, reaching a historical new high 40 times (peaking at $2790), marking the best annual performance in the past 14 years, and also outperforming US stocks in returns last year. It is expected that in 2025, there will be a showdown between Trump and the Federal Reserve, which may bring volatility to the US dollar, theoretically benefiting the price of gold. As of last Tuesday, the net long positions of gold, silver, and copper in US metal funds all declined, except for gold and silver. Other metals such as platinum, palladium, and copper all shifted from net long to net short positions. The net long positions in US gold funds fell by 1% week-on-week, while the short positions fell by 5%, resulting in fund holdings falling from a net long of 573 tons to 567 tons, the lowest level in the past 26 weeks, and the 64th consecutive week of net long positions (previously 46 weeks net long), also 62% of the historical peak of 908 tons in September 2019. As of December 31, the price of gold in US dollars has risen by 27.1% this year (up 27.4% the previous week), while the net long positions in funds have increased by 9.7% during the same period (up 11.1% the previous week). Silver, which has a high correlation with gold prices, saw a stronger fluctuation than its cousin. The net long positions in US silver funds fell by 4% week-on-week, with short positions increasing by 11%, resulting in fund holdings falling from a net long of 3202 tons to 2616 tons, the lowest level in the past 44 weeks and the 43rd consecutive week of net long positions, reaching 17% of its peak period. As of December 31, the price of silver in US dollars has risen by 21.5% this year, with net long positions in silver funds accumulating by +2.8% (previously +7.3%) and short positions increasing by 6.2% (previously -4.6%). The net long positions in US platinum funds fell by 17% week-on-week, while short positions increased by 10%, resulting in a shift from a net long of 3 tons to a net short of 14 tons. Historically, US platinum funds have maintained their net short positions for the longest period of 31 weeks (from April 2018 to October 2018). The net short positions in US palladium funds fell back to 35 tons, the lowest level in the past 16 weeks. Li Gangfeng believes that even though the bull market in palladium has ended, if palladium continues to maintain a huge net short position, it may still be difficult for other precious metals to completely reverse. US palladium funds have been in a net short position for 107 consecutive weeks, which is the longest in history. The net long positions in US gold futures funds have risen by 35% since the beginning of the year (accumulated increase of 101% in 2023) The net long positions in US silver futures funds have fallen by 1.2% since the beginning of the year (accumulated decrease of 44% in 2023) The net long positions in US platinum futures funds have fallen by 152% since the beginning of the year (accumulated decrease of 7% in 2023) The net long positions in US copper futures funds have fallen by 132% since the beginning of the year (accumulated decrease of 0.3% in 2023) Basically, from the above chart, it is clear that despite the global inflation heating up in recent years, prices of various metals have fallen to different extents, mainly because the futures market lacks funds to drive leverage. If someone had a crystal ball years ago and knew that global inflation would skyrocket this year, conflicts would escalate, and various uncertainties would arise, and they invested in precious metals in the futures market, they would have likely lost money. The most ironic thing is that since the spread of the epidemic globally in 2020, the net long positions in precious metals in the US futures market have continued to decline, indicating that funds have deliberately prevented the rise in precious metals. The CFTC's weekly report on US copper has been available since 2007. Due to the bear market in copper from 2008 to 2016, it is not surprising that most of the historical net positions for US copper futures have been in a net short position. However, since 2020, due to the impact of the global epidemic on the supply side and mining operations, as well as market expectations for strong demand for copper from electric vehicles, copper prices have risen, reaching new historical highs. But the current global investment concept is that the global economy is entering a recession, which will reduce demand for commodities. The net long positions in copper funds have plummeted, but it is not ruled out that China will introduce stimulus policies to support copper prices in the first quarter of 2025. However, it is expected that the US copper will have net short positions in the second half of the year at the latest. If you ask ten experts in the industry, I believe nine out of ten would say that they are optimistic about the prospects for copper, but Li Gangfeng is the tenth. 2024 may be the last good year for copper, and there may be a significant decline from next year onwardsbecause current copper prices are no longer cheap for Chinese midstream manufacturers and downstream demand, and they will continue to seek cheaper substitutes (such as aluminum). Unless India, the US, the Middle East, or Africa undergo a large-scale infrastructure revolution, copper prices in the coming years may be influenced by these factors. Li Gangfeng has updated the short-term direction of gold prices, with important insights into the gold mining stocks index. Last week, the ratio of US dollar gold price to North American gold mining stocks fell: As of last Friday (3rd), the ratio of gold price to North American gold mining stocks was 18.66X, a 1.1% decrease from 18.87X on the 27th. It has increased by 16.5% in 2024. In 2023, the annual increase was 13.2% (6.4% in 2022), indicating that mining stocks have lagged behind physical gold returns for at least three consecutive years. Since around 2009/2010, the trend of mining stocks has always lagged behind the commodities themselves, and in recent years even oil/natural gas production companies have experienced similar situations. Li Gangfeng believes that one of the reasons for this is the increasing emphasis in the investment community on environmental, social responsibility, and corporate governance (ESG), such as in 2021, Blackrock and the UK Parliament committed to no longer investing in coal mines and oil production companies, and they are certainly not the only fund company committed to investing only in companies and industries that prioritize ESG. With Trump's election, theoretically it is good news for mining companies because the market believes that Trump values engineering development and ignores environmental protection (from a speculative point of view, one may pay attention to some projects in the US that have not been developed for various reasons in the past, with the market anticipating the possibility of policy approval). But the problem is that the market also believes that there will be a strong dollar and reduced consumption (due to increased tariffs), which is not favorable for commodity prices. Moreover, in an environment where the market is bullish on US stocks, the mining sector may continue to be neglected. The future price of copper will depend on whether the US will launch large-scale infrastructure projects. Li Gangfeng believes that tracking the stock prices of overseas gold mines is one of the more reliable forward-looking toolsIf the price of gold continues to rise but gold mining stocks experience a sharp drop, be careful.Gold-silver ratio The gold-silver ratio is one of the indicators that measures market sentiment. Historically, the gold-silver ratio has operated at levels of approximately 16 to 125 times: Generally, the more fearful the market is, the higher the gold-silver ratio will be. For example, in 2020, the spread of the COVID-19 pandemic globally caused the gold-silver ratio to reach a historical high of over 120 times. Last Friday, the gold-silver ratio index was 89.2, down 0.1% compared to the previous week, but up 4.7% compared to 2024. Cumulatively, it had risen by 14.0% in 2023. Silver has performed worse than gold for two consecutive years, indicating that the market continues to focus on risk. It should be noted that both the US dollar gold price/North American gold mining stock ratio and the gold-silver ratio have shown a clear trend of bottoming out and rebounding. The financial markets have clearly entered a stage of trading during an economic recession. The US may keep interest rates unchanged in January At the time of writing, the market believed that there was an 88.8% chance that the Federal Reserve would keep interest rates unchanged on January 29th: The chart below depicts the probability distribution of interest rates in the US in December 2025 as forecasted by the futures market at the time of writing: As of last Friday, the market's estimate of the number of interest rate cuts by the Federal Reserve next year remained at a reduction of 1-2 times as the highest probability. After a long period of validating the futures market's predictions of US interest rate trends, especially long-term expectations, they are generally incorrect. Therefore, Li Gangfeng boldly predicts that the number of interest rate cuts in the US next year will exceed current market expectations, especially if there is a stock market crash next year. It is expected that there will be a struggle between Trump and the Federal Reserve in 2025, which may bring volatility to the US dollar and theoretically be favorable for gold prices. Gold prices rose by 25.5% in 2024, setting a historical record of 40 times (reaching as high as $2790), marking the best annual performance in 14 years. Last year's returns were also outperforming US stocks. The main reasons for the outstanding performance of gold prices in 2024 include concerns in the market over geopolitical issues, and more importantly, the belief that the US is entering a rate-cutting cycle. This in turn reduces the opportunity cost of holding gold, as the US dollar was relatively weak and powerless before Trump's re-election. Therefore, central banks and investment demand have been strong worldwide in the past year, especially in India, where demand for gold remained robust throughout the year. Additionally, India's central bank was among one of the largest buyers of gold last year, increasing its holdings by 72.6 tons compared to 16 tons in 2023 and 33 tons in 2022. Gold now accounts for 10.2% of India's foreign exchange reserves, up from 7.8%. Even US allies significantly increased their gold reserves. Li Gangfeng cannot understand why some central banks of US allies did not increase their gold purchases earlier. In theory, a country can nationalize the gold held by domestic banks at any time, but this is not an operation that can reassure the market, as it attacks the hearts of its own people rather than others'. Recently, the price of gold in China has returned to a higher level compared to the international price. In a global economy that is difficult to manage over the next four years, it could be a considered strategy to buy during periods of weakness in gold prices. If there are concerns about the US balance sheet and the US dollar in the market, no one, regardless of who is president, can change the historical trend. During the previous term when Trump was president, the national debt increased by $7.8 trillion due to tax cuts and unrestricted spending, making him the US president with the third largest increase in financial deficit during his tenure. However, from an investment perspective, fundamentals are not important, but rather what the market currently believes. The market believes that if Trump is re-elected, the US dollar will rise, bond prices will fall, commodities will decline, and US stocks and digital currencies will rise. Earlier this year, Li Gangfeng predicted in this column that if Trump was re-elected, the market might give him a honeymoon period of about six months, so the strength of US stocks and digital currencies might continue until around the end of April next year; in terms of metals, unless there is a resurgence of geopolitical tensions, the high point of the short to medium term may have passed. According to historical statistics, the average return of gold prices in the first year of a US president's term is only slightly over 1%; the first year of their term is often the worst performing year of their four-year term. The biggest challenge in the next 12 to 24 months will be if the US starts cutting interest rates, but inflationary pressures rise again, where will the Federal Reserve go? If in 2025 the US starts reducing spending, US stocks experience a major drop, the Federal Reserve's rate cuts are not as expected, and geopolitical risks increase, it is almost certain that the US dollar will rise or maintain a high level. In March to May 2025, there may be significant market fluctuations (declines) globally, and it is advisable to gradually reduce holdings of risky assets during these months to preserve gains.