Make Kitco Your Homepage

Recession risks and inflation fears keep gold price volatile, palladium price driven by Russia supply questions

Kitco News

(Kitco News) Volatility is at the forefront of precious metals trading at the beginning of the week, with gold and palladium posting and then erasing double-digit gains as silver rallied.

Gold jumped and came close to testing the $1,975 an ounce level early Monday before dropping back towards $1,950. At the time of writing, June Comex gold futures were trading at $1,951.70, up 0.31% on the day. Silver also saw a significant move up, with May Comex futures last at $25.15, up 1.34% on the day.

For gold, it is all about rising recession risk and inflation headlines, according to analysts. "Gold remained well bid amid inflation worries. The precious metal has seen strong investor demand as a hedge against what looks like structurally high inflation. Safe-haven demand amid the Ukraine war also continues to support prices. A U.S. military general indicated that the conflict could last a year, supporting prices on Friday," said ANZ senior commodity strategist Daniel Hynes.

There is a growing risk of a recession in the U.S. as the Federal Reserve pursues aggressive tightening at its May and June meetings. The markets are not ruling out two oversized 50-basis-point rate hikes.

Deutsche Bank's recession call: U.S. economy to take 'major hit' as Fed tightens

In light of this, the Wall Street Journal published its own survey that polled economists, stating that the chances of a recession in the U.S. within the next year are up at 28% from 18% reported back in January.

Also, Bank of America is joining the bearish club as it warned investors of the coming inflation shock.

"'Inflation shock' worsening, 'rates shock' just beginning, 'recession shock' coming," BofA chief investment strategist Michael Hartnett wrote in a note to clients. "Inflation causes recessions."

On the other hand, weighing on gold are rising Treasury yields, which are keeping the U.S. dollar supported.

"The 10-year yield traded at a new cycle high near 2.78% and is on track to test the October 2018 high near 3.26%. With inflation expectations remaining fairly steady, the real 10-year yield has risen to -0.13%, the highest since March 2020 and poised to move into positive territory for the first time since before the pandemic," said BBH Global Currency Strategy head Win Thin.

Live 24 hours gold chart [Kitco Inc.]

Let's talk palladium

On Monday, palladium surged above $2,520 an ounce, extending Friday's gains in another volatile session after a recent trading ban on metal from Russia. June Comex palladium futures were last at $2,469.50, up more than 2% on the day.

The latest surge in palladium was trigged on Friday when London Platinum and Palladium Market said it would suspend both Russian refiners on its list — JSC Krastsvetmet and the Prioksky Plant of Non-Ferrous Metals — from trading in London.

This is big news for the PGM market because Russia accounts for just under 40% of global palladium production, making it the second-largest producer. This week, supply concerns remain the main story, said strategists at TD Securities.

"Our immediate and conservative estimate of the scale of this disruption suggests that more than 102 tonnes of PGM output will be disrupted as a result of this decision, considering the epic scale of these refiners," they said. "However, China is among the largest consumers of palladium, which suggests a more limited impact to flows than suggested by the massive scale of the refinery's output."

In light of the new supply disruptions, BMO Capital Markets is looking for palladium to average the second quarter at $2,700 an ounce versus the spot price of above $2,400 an ounce.

"Ultimately, Russian palladium production broadly matches demand from China, so tonnage will likely be able to find its way into global markets, but this will take time and should provide fundamental price support over the near term," BMO Capital Markets managing director Colin Hamilton.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.