European Natural Resources Fund: The Fed did not cut interest rates in January, and it is expected that the price of gold will maintain its strong performance in the first quarter.

In recent days, Li Gangfeng, a special analyst for the European Natural Resources Fund Commodity Discovery, wrote that as of last Tuesday, the net long positions of gold, silver, platinum palladium, and copper funds in the US metals market have rebounded across the board. At the time of writing, the market believed that the probability of the Federal Reserve keeping interest rates unchanged on January 29 was 99.5% as of last Friday, and the first rate cut could be the biggest opportunity between May and July, with the possibility of another rate cut in October or December. From the current technical analysis, the gold price is still strong, and it is estimated that the first quarter may be the best performing quarter of the year; traditionally, the second and third quarters are weak periods for gold, and there may be significant volatility and adjustments (declines). Data source: CFTC/LSEG Workspace *For ease of comparison, the metal equivalent of COMEX gold is divided by 10, and the metal equivalent of COMEX silver is divided by 100. **Currently, the reference value of Nymex palladium is very low. As of last Tuesday, the net long positions of US metal gold, silver, platinum palladium, and copper funds rebounded across the board. Last week, the net long positions of US gold funds increased by 7% on a week-on-week basis; while the short positions of funds fell by 25%. As a result, fund holdings rose from a net long position of 605 tons to 661 tons, the highest level in the past 5 weeks, and the 66th consecutive week of net long positions (previously 46 consecutive weeks of net long) and 73% of the historical peak of 908 tons in September 2019. As of January 14th, the price of gold in US dollars has accumulated a 2.0% increase this year (up 0.9% last week), and the net long positions of funds have accumulated a 13.1% increase during the same period (up 5.5% last week). The silver, which is highly correlated with gold prices, has always shown stronger fluctuations than its precious cousin. Last week, the net long positions of US silver futures increased by 7% on a week-on-week basis; while the short positions of the funds fell by 2% again. As a result, fund holdings continued to rise from a net long position of 3983 tons to 4479 tons, the highest level in the past 5 weeks, and the 45th consecutive week of net long positions, reaching 29% of its peak. As of January 14th, the price of silver in US dollars has accumulated a 3.5% increase this year, with silver fund net long positions accumulating +20.2% (up +12.7% last week) and short positions accumulating -20.8% (down -19.1% last week). The net long positions of US platinum funds fell by 17% last week; but because the short positions also fell by 24% at the same time, the result rose from a net long position of 9 tons to 11 tons last week. Historically, US platinum fund net short positions have been maintained consecutively for 31 weeks (from April 2018 to October 2018). The net short positions of US palladium funds have risen to 36 tons. The author believes that even if the bull market in palladium has ended, if palladium continues to maintain a large net short position day after day, it may still be difficult for other precious metals to completely reverse. The net short positions of US palladium funds have been at a historically long net short position for 109 consecutive weeks. Funds in US futures gold have risen 17% since the beginning of the year (35% accumulated in 2024). Data source: CFTC/LSEG Workspace Funds in US futures silver have risen 71% since the beginning of the year (1% accumulated in 2024). Data source: CFTC/LSEG Workspace Funds in US futures platinum have risen since the beginning of the year (down 152% in 2024). Data source: CFTC/LSEG Workspace The net long positions of funds in US copper futures have risen since the beginning of the year (down 132% in 2024). Data source: CFTC/LSEG Workspace Basically, from the above graph, it can be clearly seen that despite the global inflation heating up in recent years, prices of various metals have shown different degrees of decline, mainly because the futures market lacks funds to drive leverage. If someone had a crystal ball a few years ago and knew about the current global spike in inflation, conflicts, and uncertainties, and went long on precious metals in the futures market, they would most likely lose money. The irony is that since the global spread of the pandemic in 2020, the net long positions of precious metals in the US market have been declining, reflecting a deliberate effort by funds to prevent precious metals from rising. The CFTC weekly report on US copper has been available since 2007. Due to the bear market in copper from 2008 to 2016, the fact that copper futures in the US have mostly been in a net short position historically is not surprising. However, starting from 2020, due to the impact of the global pandemic on the supply side and mining operations, coupled with the strong market expectations for copper demand from electric vehicles, copper prices have risen to new historical highs. But currently, the global investment sentiment is that the world is entering an economic recession, leading to a decrease in commodity demand. The net long positions in copper funds have seen a sharp decline, and it is not ruled out that China will introduce stimulus economic policies in the first quarter of 2025 to provide support for copper prices. However, it is expected that by the second half of this year, US copper will show net short positions. If you ask ten experts in the industry, I believe nine out of ten will say they are optimistic about the prospects for copper, but I am the tenth. 2024 may be the last good year for copper, and there may be a more significant decline starting next year - because the current copper prices are not cheap for Chinese midstream manufacturers and downstream demand, and they will continue to seek cheaper alternatives (such as aluminum). Unless India, the United States, the Middle East, or Africa undergo a massive infrastructure revolution, copper prices in the coming years may be dominated by downside movements. The author has updated the gold price indicator for short-term gold stocks that has important implications for short-term gold price directions. Last week, the US dollar gold price/North American gold stock ratio experienced a decline: Data source: LSEG Workspace The gold price/North American gold stock ratio as of Friday the 17th was 18.37X, a decrease of 0.8% from the 18.51X on the 10th, a 4.0% decrease this year. Accumulated 16.5% in 2024. The full year of 2023 saw an increase of 13.2% (6.4% in 2022), indicating that mining stocks have consistently underperformed physical gold for at least three years. In fact, starting from 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 faced similar situations. The author believes that the reason for this is the increasing importance of environmental, social responsibility, and corporate governance (ESG) in the investment community. For example, in 2021, Blackrock and the UK Parliament said...They will promise not to invest in coal mines and oil production companies anymore, and they are definitely not the only fund company committed to investing only in companies and industries that prioritize ESG.Now that Trump has been elected, theoretically it is good news for mining companies, as the market believes Trump prioritizes engineering development over environmental protection (speculators may want to pay attention to projects in the United States that have not been developed due to various reasons in the past, with the market anticipating that policies may give the green light). However, the market also believes that there will be a strong US dollar, reduced consumption (due to increased tariffs), which is not favorable for commodity prices. Additionally, in an environment where the market is bullish on US stocks, the mining sector can continue to be overlooked. The future copper price depends on whether the US will push for large-scale infrastructure projects again. The author believes that tracking the stock prices of overseas gold mining companies is a reliable forward-looking tool. For example, if the price of gold continues to rise but the stock prices of gold mining companies plummet, one should be careful. Gold-silver ratio The gold-silver ratio is an indicator of market sentiment. Historically, the gold-silver ratio has ranged from approximately 16 to 125 times: Data source: LSEG Workspace In general, the more fearful the market, the higher the gold-silver ratio. For example, in 2020, the spread of COVID-19 globally caused the gold-silver ratio to reach a historical high of over 120 times. Last Friday, the gold-silver ratio index was 89.0, up 0.6% compared to the previous week. The ratio has dropped by 2.0% this year and increased by 4.7% in 2024. The cumulative increase in 2023 was 14.0%, and for at least two years, silver has performed worse than gold, indicating that the market's focus on risk remains high. It is important to note that both the USD gold price/North American gold mining stock ratio and the gold-silver ratio are clearly showing a bottoming trend. The financial market has clearly entered a stage of trading economic recession. The US may maintain interest rates in January At the time of writing, the market believes that there is a 99.5% probability that the Federal Reserve will keep interest rates unchanged on January 29: Image source: LSEG Workspace The first rate cut may be most likely in May to July, and if there is another cut, it might be in October or December. After a long period of verifying market predictions of US interest rate trends through futures markets, especially long-term expectations, they are generally wrong. Therefore, the author boldly predicts that the number of US rate cuts 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 confrontation between Trump and the Federal Reserve in 2025, which may cause fluctuations in the US dollar and theoretically benefit the gold price. The standout performance of gold prices in 2024 is mainly due to the market's concerns about geopolitical issues and, more importantly, the belief that the US is entering a rate-cutting cycle. Not only is the opportunity cost of holding gold starting to decrease, but the US dollar has been weak and insipid before Trump's victory in the election. Therefore, demand from central banks and investors around the world has been strong in the past year. Based on current technical analysis, the gold price is still strong, and it is estimated that the first quarter may be the best performance quarter of the year; traditionally, the second and third quarters are both weak periods for gold, and there may be significant volatility and adjustments (declines). Additionally, the gold price in China has recently returned to a higher level compared to international prices. In a global economy that is difficult to manage in the next four years, buying gold during weak periods is a strategy to consider. When it comes to concerns about the US balance sheet and the US dollar in the market, no president can change the course of history. In the previous term when Trump was president, national debt increased by $7.8 trillion, coupled with tax cuts and no restrictions on other expenses, resulting in him setting a historical record as the US president with the third largest fiscal deficit growth while in office. However, from an investment perspective, fundamentals are not important; what matters is what the market believes at the moment. The market believes that with Trump's election, the US dollar will rise, bond prices will fall, commodities will fall, and US stocks and cryptocurrencies will rise. Earlier this year, the author predicted in this column that if Trump were elected, the market might give him a honeymoon period of about six months, so the strength of US stocks and cryptocurrencies may continue until around the end of April next year; However, in terms of metals, unless geopolitical tensions escalate again, the short to medium-term peak may have passed. According to historical statistics, the average return of gold prices in the first year of a US president's term is just over 1%, making it the worst-performing year of the four-year term. The biggest challenge in the next 12 to 24 months will be if the US starts cutting rates, but inflation pressures rise again, where will the Federal Reserve go? In 2025, if the US starts cutting spending, US stocks experience a major decline, the Federal Reserve cuts rates less than expected, and geopolitical risks increase, it is almost certain that the US dollar will rise/maintain high levels. In March-May 2025, global financial markets may experience major fluctuations (downward). It is advisable to gradually reduce risky assets during these months to protect gains.