Commodities wrap: gold, silver, and oil prices rise ahead of key economic events

Commodities are broadly rallying, with gold reaching a new record high and silver hitting 14-year highs, primarily driven by strong expectations for a dovish US Federal Reserve and a 90% probability of a 25bps rate cut this month. Silver is notably outperforming gold, evidenced by sustained ETF inflows and a declining gold/silver ratio, with Friday's nonfarm payrolls data keenly awaited to confirm a softening labor market. Meanwhile, oil prices advanced ahead of the OPEC+ meeting, where unchanged production levels are largely expected, though the risk of future supply cuts due to surplus concerns remains.

Analysis

A broad-based rally is evident across key commodities, primarily driven by macroeconomic expectations. Gold has extended its advance to a new record high of $3,578 per ounce, a 1.7% increase, fueled by market anticipation of monetary easing from the U.S. Federal Reserve. Traders are pricing in a 90% probability of a 25-basis-point rate cut on September 17, according to the CME FedWatch tool, creating a favorable environment for non-yielding assets. Silver is exhibiting even stronger performance, with prices surpassing $41 per ounce to reach a 14-year high. This outperformance is quantified by the gold/silver ratio, which has contracted from a peak of 104.7 to 85, moving closer to its long-term average. The rally in silver, up over 40% this year, is supported by strong institutional demand, reflected in a seventh consecutive month of ETF inflows which reached 806 million ounces in August. In energy markets, Brent crude futures breached $69 per barrel for the first time in nearly a month ahead of a critical OPEC+ meeting. While the consensus expectation, noted by ING analysts, is for the cartel to maintain current production levels for October, the more significant forward-looking risk is a potential reinstatement of supply cuts to address a projected market surplus next year.

Key Decisions for Investors

• Investors should monitor Friday's U.S. nonfarm payrolls data, as a weaker-than-expected figure would likely solidify Fed rate cut expectations and further propel gold and silver prices, whereas a strong report could trigger a near-term correction.
• Given silver's sustained outperformance and the contracting gold/silver ratio towards its historic mean, consider tactical allocations favoring silver over gold to capitalize on its current momentum, which is supported by strong ETF inflow data.
• For oil positions, while the upcoming OPEC+ meeting is expected to result in no production changes, the key risk to monitor is any shift in guidance regarding a potential future supply cut to manage a forecasted surplus, which would be a significant bullish catalyst.