Gold Under Pressure as Zinc Hits Four-Year Highs

Tashkent, Uzbekistan (UzDaily.uz) — Metal markets came under renewed pressure in mid-August as macroeconomic factors weighed on prices, with rising government bond yields emerging as the main driver.

The yield on 30-year U.S. Treasury bonds rose to its highest level in 19 years, while sovereign debt yields in other major economies also reached multi-year highs. For commodities, higher yields support the dollar, increase the cost of capital and reduce the appeal of assets that do not generate interest income.

Gold was trading below US$4,360 an ounce after falling nearly 2% the previous day, while silver dropped below US$63 an ounce. Both metals are being affected not only by rising yields but also by a renewed oil premium. The United States and Iran have so far been slow to reach an agreement to end the conflict and reopen the Strait of Hormuz.

Donald Trump said negotiations with Tehran were not taking place, while Iranian forces intensified attacks on vessels in the strait. This has again highlighted risks to the oil market and, in turn, expectations of more persistent inflation.

For precious metals, this creates a difficult environment. Under normal circumstances, geopolitical tensions could support gold and silver as safe-haven assets. But the market is now taking a broader view: if tensions in the Middle East push up oil prices and inflation, the Federal Reserve could maintain a restrictive policy for longer.

Markets are therefore awaiting the minutes of the Federal Reserve's July meeting and a speech by Fed chief Kevin Warsh at the Jackson Hole symposium. These signals could become the main reference point for gold and silver through the end of the month.

Platinum remains more resilient

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

Support is coming from expectations of demand from hybrid vehicles, where platinum-group metals continue to be used in catalytic systems. The market is also factoring in risks to production in South Africa due to power disruptions and technical constraints at mines.

At the same time, investors remain cautious over the longer term as the growing share of electric vehicles gradually changes the structure of demand for automotive catalysts.

Zinc reaches four-year highs

Zinc stands out in the industrial metals segment. Futures are trading near US$3,700 per tonne, close to four-year highs.

The main driver is a tight supply situation. Heavy rains and flooding in China are threatening the operations of mines and metallurgical plants, while some production cuts and scheduled maintenance are already reducing output of concentrate and refined metal.

Supply pressures are also visible outside China. Production at major producers, including Glencore, Boliden and MMG, has declined in recent reporting periods. LME inventories have fallen to their lowest level since December, while a high share of cancelled warrants indicates that less metal is available for immediate delivery.

Copper retreats after inventory increase

Copper, by contrast, has retreated to US$6.45 per pound after a recent strong rally.

The trigger was a replenishment of LME inventories. Stocks jumped by 20,000 tonnes in a single day, the largest daily increase since April.

The additional supply has eased some of the pressure following a historic squeeze in availability that had previously pushed prices to record levels. However, it is still too early to speak of a trend reversal.

Chile, the world's largest copper producer, expects output to decline this year because of disruptions at mines and delays to projects. At the same time, long-term demand from the energy, infrastructure and technology sectors remains high.

Aluminium reacts to prospects for supply recovery

Aluminium slipped from a seven-week high to US$3,270 per tonne.

The market is responding to news of a recovery in production in the Persian Gulf. Emirates Global Aluminium confirmed plans to return its Al Taweelah plant to full capacity by the first quarter of next year.

This removed some concerns about supplies from a region that accounted for about 10% of global aluminium production before the conflict. Another factor was a decision to support Australia's largest aluminium plant, which also reduces the risk of supply disruptions.

Different forces shape metal markets

Overall, the metals market is currently being driven by several different stories rather than a single common trend.

Gold and silver are being influenced by bond yields, the dollar, oil prices and signals from the Federal Reserve. Platinum is supported by supply constraints and demand from hybrid vehicles.

Zinc is rising on a localized supply deficit and production disruptions, copper is correcting after inventories were replenished, while aluminium is responding to the prospect of recovering supplies.

The main theme remains unchanged: the commodity market is assessing not only geopolitical developments but also the actual availability of metals here and now.

Anna Bodrova,
Alpari analyst