Precious Metals Strengthen, Oil Prices Volatile

The Chinese New Year holiday is often a period of reflection and celebration, but this year, it has also brought about notable movements in the global commodities marketThe performance of precious metals during this holiday has bewildered many financial analysts and investors alike.

During this festive season, there was an impressive surge in precious metals, with COMEX silver futures jumping more than 6%, making it the best-performing commodity of the periodOn February 3, the price of gold hit an unprecedented high of $2872 per ounce, signaling a robust demand for safe-haven assets amidst economic uncertaintyIn stark contrast, crude oil prices faced turbulence, with WTI and Brent crude futures experiencing declines of approximately 2.5% and 1.9%, respectively.

The macroeconomic backdrop has played a crucial role in these fluctuationsRecently, the U.S. government introduced changes to its tariff policies, adding new tariffs on various imports, which reinvigorated the dollar's momentumHowever, these trade policy adjustments have sparked concerns, particularly in markets sensitive to inflationInvestors have gravitated toward precious metals as a hedge against potential economic instability.

Across the globe, central banks are also adjusting their monetary policiesThe European Central Bank recently cut its key interest rates by 25 basis points, signaling a trend towards economic easingMeanwhile, the U.SGDP growth rate for the fourth quarter has slightly slowed and underperformed market expectationsThis multifaceted scenario has contributed to escalating volatility in global commodity prices.

The precious metals market has particularly captured investor attention, with silver leading the charge and gold hitting historical heightsAs of February 4, COMEX gold futures had a year-to-date increase exceeding 6.7%. Spot gold in London soared to $2830.57 per ounce at one point during this volatile period, showcasing a significant appetite for these commodities.

A closer analysis reveals that the adjustments in U.S. tariff policy are primarily influencing the uptick in precious metals

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Market participants express fears that increased tariffs on imports may exacerbate inflation, subsequently hindering economic growthFurthermore, these developments intensify global trade tensions, fostering a greater demand for safe-haven assetsThe substantial shift towards looser monetary policies by many major central banks has also provided underlying support for rising precious metal prices.

On January 29, the Federal Reserve announced it would maintain the federal funds rate in the range of 4.25% to 4.5%. This marked the first pause in the interest rate cuts since the Fed began its easing cycle last September, aligning with broader market expectations.

According to Wang Peng, the chief macro analyst at Galaxy Futures, "a divergence is emerging in the monetary policies of major economies." While the Federal Reserve opted to refrain from cutting rates in January, central banks in Europe, Canada, South Africa, and Sweden all reduced their benchmark rates by 25 basis pointsEven more pronounced was Japan's decision to raise interest rates, suggesting further hikes might be on the horizonThe confluence of these factors led to a tightening of dollar liquidity starting from late January, resulting in rising yields in the short end of the U.STreasury market.

From a positioning perspective, SPDR Gold ETF reported an increase in holdings by 4.6 tons, bringing the total to 864.8 tons, while iShares Silver ETF saw a decline of 322.9 tons, reaching 13,882.5 tonsThis demonstrates a nuanced sentiment among investors, some of whom opted to cash in on recent price surges.

On the other hand, the oil market's sentiment painted a contrasting picture during the same timeframeThe Brent crude fell from a high of $77 per barrel to around $75.5 amid growing concerns influenced heavily by U.S. political developmentsAnalysts at Nanhua Futures articulated that recent policies implemented by the U.S. president have negatively affected the medium to long-term outlook for the oil market