What will drive the rally in precious as well as industrial metals?

Spot gold is currently trading at $2,351.3. Prices of the yellow metal have sustained their upward momentum amid a renewed weakness in the U.S. dollar and retreating U.S. Treasury yields, ANZ said in a recent note. But that’s not all.

“While geopolitical risks continued to bolster haven demand, an impressive rise in China’s gold demand in Q1 2024 has largely fueled the price rally,” ANZ’s strategists wrote. 

China is currently the leading consumer demand for bullion, after the country overtook India in 2023 to become the world’s largest buyer of gold jewelry.

Chinese consumers have also been at the forefront of gold purchases, buying 603 tons of gold jewelry last year, a 10% jump from 2022, data from the World Gold Council showed. The WGC expects Chinese jewelry demand to stay at elevated rates this year, or even higher compared to 2023.

UBS strategists in a note last week raised their forecasts for gold to $2,500 per ounce by the end of September, and $2,600 by year-end. The bank’s bullish outlook is owed to stronger Chinese demand, on top of a series of soft U.S. data in April, which has driven some repricing of expectations for U.S. Federal Reserve rate cuts.

Higher rates tend to pressure gold as they make Treasuries — also a safe-haven asset — a more attractive option for investors.

“We think gold can continue to make new highs,” UBS’s Precious Metals Strategist Joni Teves told CNBC’s “Street Signs Asia” on Monday.

What about gold’s poorer cousin, silver? While silver tends to play  “second fiddle” to the yellow metal, the two share a positive correlation when it comes to prices, albeit with a lag on silver’s part.

“Silver has been arguably even more interesting – finally it managed to enjoy some decent catch up with gold,” Nikos Kavalis, managing director at precious metals research consultancy Metals Focus, told CNBC via email. He elaborated that as the market gets more comfortable and convinced of gold’s bullish run, more of these investors are turning to silver.

Silver rallied past $31 per ounce to over a decade high last Wednesday amid surging investor interest and supply challenges. It is currently trading at $31.6 per ounce.

“We think [silver is] actually the best placed precious metal to really benefit from higher gold prices. There’s a very strong correlation there,” said Teves.

She added that when the Fed eases, silver is in a “good position to really outperform gold,” especially as supply and demand fundamentals remain tight.

“Slower mine production growth and strong industrial demand suggest supply is lagging demand, which will keep the market in a structural deficit,” said Daniel Hynes, senior commodity strategist at ANZ.

Silver is used extensively for industrial purposes and commonly incorporated in the manufacturing of automobiles, solar panels, jewelry and electronics.

Metal Focus’ Kavalis said that other precious metals like platinum, palladium and rhodium are all in deficits this year, and hence should see supportive prices.

Copper too, recently had its shining moment, hitting an all-time high of $10,857 per ton last Tuesday before tapering off. It’s currently trading at $10,256 per ton.

Prices of the red metal have been “well supported by supply tightness” this year, said ANZ, as supply constraints mount. The International Copper Study Group (ICSG) has slashed its supply surplus forecasts for the metal this year due to lower-than-expected production.

Last November, First Quantum Minerals halted production at its Cobre Panamá copper mine, one of the world’s largest, following a Supreme Court ruling and nationwide protests over environmental concerns. Anglo American, a major producer, said it would cut copper output in 2024 and 2025 as it seeks to cut costs.

“Robust gains for industrial metals and the precious metals complex are underpinning financial and physical inflows and bullish sentiment,” Citi strategists said in a note earlier this month, adding that it’s a “bullish world for metals.”

The investment bank’s base case now is for consolidation in copper prices over the next three to six months, but believes that copper still has room to rally further, depending on the degree of the Fed easing and the global manufacturing recovery.

“We still firmly believe that copper is on a path to $12k/t, and $15k/t in our bull case over the next 12-18 months,” Citi’s strategists said.