"What's Next?" Gold and Silver Hit All-Time Highs... Commodity Choices [Weekend Money]

Gold and Silver Hit Record Highs amid Strong Hedging Demand
Zinc Rebounds, Signaling Liquidity Shift to Non-Ferrous Metals

"There is no rule that only precious metals should dominate. Next in line are non-ferrous metals."

Securities firms are diagnosing that the so-called 'commodity supercycle,' which began with gold and silver, is now in full swing for other non-ferrous metals as well, as the price of zinc-a representative non-ferrous metal that reflects the construction market-has rebounded despite sluggish industry conditions. This follows the same pattern observed during past liquidity-driven rallies.

According to Daishin Securities on January 31, gold and silver prices have once again reached all-time highs this week. Even after the Chicago Mercantile Exchange (CME) raised margin requirements for precious metals futures and changed the margin calculation method from a fixed amount to a percentage basis, it failed to dampen investor enthusiasm. The Bloomberg Commodity Index has been rising for six consecutive months, driven solely by precious metals, despite the poor performance of the energy sector, which holds the largest weighting in the index.

Jin Young Choi, a researcher at Daishin Securities, cited strong hedging demand as the main reason for the continued outperformance of the precious metals sector, specifically pointing to: ▲hedging demand from central banks worldwide, and ▲hedging demand due to de-dollarization. He noted that expectations surrounding a potential policy rate cut by the US Federal Reserve are further stimulating central banks' demand for gold as a hedge. In addition, major countries are once again turning to stimulus measures ahead of the US midterm elections, Japan's general election, and China's National Congress.

Choi particularly emphasized that there is no reason why only precious metals should dominate, stating, "The sector to watch going forward is non-ferrous metals." Theoretically, during periods of liquidity expansion, the leading sector among commodities shifts in order from precious metals, to non-ferrous metals, to energy, and then to agricultural products. Choi explained, "During the liquidity-driven rally of 2020-2021, precious metals led first, followed by aluminum and battery metals, and then the leadership shifted to natural gas and oil. Unlike precious metals, non-ferrous metals and energy tend to lag behind the global liquidity index, which is another example of this pattern." He added that this same pattern was observed during the liquidity rally of 2009.

There are also symbolic products that indicate liquidity, which had been concentrated in precious metals, has recently started to flow into non-ferrous metals. Zinc, which reflects the state of the construction market, is a prime example. Choi pointed out, "Zinc demand remains weak due to the collapse of China's real estate market," but added, "Nevertheless, zinc prices are rebounding." Despite the sluggish construction market, the price of zinc, which stood at around $2,700 per ton in February last year, has recently surged to approximately $3,400 per ton. He assessed, "This is the point at which non-ferrous metals have begun to reflect the global liquidity index," and concluded, "It is evidence that liquidity is starting to flow in."

Accordingly, there is a high probability that this cycle will also follow the same pattern as in the past, marking the 'early stage of a commodity supercycle.' Choi stressed, "Liquidity that started with gold and silver in early 2024 is now spreading to platinum-group metals and copper in 2025, and then to other non-ferrous metals. The commodity supercycle has begun." He further recommended, "Rather than further increasing allocations to precious metals, investors should actively expand their positions in non-ferrous metals."