Yields weigh on gold, zinc hits record highs: What's happening in the metals market?

Yields are putting pressure on gold, zinc is hitting its peak: what's happening in the metals market

By mid-August, the metals market was once again under the influence of macroeconomic factors, the key one being rising government bond yields.

The yield on 30-year US Treasury bonds reached a 19-year high, while sovereign debt rates in other major economies hit multi-year highs. This is an unfavorable sign for commodities: high yields are strengthening the dollar, increasing the cost of capital, and reducing the appeal of non-interest-bearing assets.

Gold is trading below $4,360 per ounce after a nearly 2% drop yesterday, while silver has fallen below $63 per ounce. Both metals are suffering not only from rising yields but also from the return of the oil premium. The US and Iran are still in no hurry to agree on ending the conflict and opening the Strait of Hormuz.

Donald Trump has declared no negotiations with Tehran, while Iranian forces have stepped up attacks on ships in the Strait. This once again highlights the risks to the oil market and, consequently, expectations of more persistent inflation.

This creates a challenging situation for precious metals. Under normal circumstances, geopolitical tensions could support gold and silver as safe-haven assets. However, the market is now taking a broader view: if Middle East tensions fuel oil prices and inflation, the Federal Reserve may maintain tight monetary policy for longer.

Therefore, everyone is awaiting the minutes of the July Federal Reserve meeting and Fed Chairman Kevin Warsh's speech at the Jackson Hole Symposium. These signals could become the main guide for gold and silver for the rest of the month.

Against this backdrop, platinum appears noticeably more resilient. The price is holding near $1,730 per ounce after rising to a two-month high.

Support is provided by expectations of demand from hybrid vehicles, where platinum group metals are still used in catalytic converters. The market is also factoring in risks to mining in South Africa due to power outages and technical limitations at mines. However, investors are cautious in the long term: the growing share of electric vehicles is gradually changing the structure of demand for autocatalysts.

In the industrial segment, zinc stands out. Futures are trading around $3,700 per tonne, near four-year highs.

The main reason for this is the tight supply situation. Heavy rains and floods in China are threatening the operation of mines and smelters, and isolated production cuts and scheduled maintenance are already reducing concentrate and refined metal output. Supply pressure is also being seen outside of China: major producers, including Glencore, Boliden, and MMG, have seen zinc output decline in recent reporting periods. LME inventories fell to their lowest since December, and the high proportion of cancelled warrants points to a tightening of metal available for quick delivery.

Copper, on the other hand, retreated to $6.45 per pound after a recent strong rally. This was driven by LME warehouse replenishment: inventories soared by 20,000 tonnes in a single day, the largest daily increase since April. This supply somewhat eased the historic supply squeeze that had previously driven prices to record levels. However, it is too early to talk about a reversal of the trend.

Chile, the largest copper producer, expects output to decline this year due to mine outages and project delays, while long-term demand from energy, infrastructure, and technology remains strong.

Aluminum slipped from a seven-week high to $3,270 per tonne. Here, the market is reacting to news of production restoration in the Persian Gulf: Emirates Global Aluminium confirmed plans to return its Al Taweelah smelter to full capacity by the first quarter of next year.

This has allayed some concerns about supplies from the region, which accounted for approximately 10% of global aluminum production before the conflict. An additional factor was the decision to support Australia's largest aluminum smelter, which also reduces the risk of supply disruptions.

Overall, the metals market is currently experiencing several different trends rather than a single trend. Gold and silver are dependent on yields, the dollar, oil, and signals from the Federal Reserve. Platinum is relying on supply shortages and demand from hybrid vehicles.

Zinc is rising on local shortages and production disruptions, copper is adjusting after replenishing inventories, and aluminum is responding to the prospect of supply restoration. The main idea remains the same: the commodity market is assessing not only geopolitics but also the actual availability of metal in the here and now.

Anna Bodrova,

Alpari Analyst