Wall Street Makes Some Truly Strange Trades

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CNN
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Wall Street traders looking for profits may find that the most lucrative investments are in the precious metals market.

Prices of gold, silver and platinum have surged this year as investors flocked to the precious metals looking for places to hide from trade war uncertainties.

President Donald Trump’s chaotic tariff plan has roiled markets, and investors have tried to minimize risks by putting some of their money in safe-haven assets. While gold is historically considered a safe haven, the demand for these safe havens has spread to its wonky cousins ​​like silver and platinum.

The metals craze is reflected in the numbers: precious metals have dominated the US stock market this year. Gold rose 27.5%, silver 24% and platinum 36%.

Meanwhile, after rising 23% last year and 24% in 2023, the S&P 500 is up less than 3% so far this year; there is an unusual amount of nervousness in the bond market, normally calm; and the US dollar has greatly weakened after an increase of 7% last year.

As bonds have been volatile and the dollar has weakened amid the tariff crisis, oddball investments like silver and platinum have emerged as a way to hedge against the enormous uncertainty.

“These dynamics have further incentivized investors to diversify away from traditional financial instruments and toward tangible assets,” said Ole Hansen, head of commodities strategy at Saxo Bank, in a note published Friday.

“Gold continues to be the primary safe haven,” Hansen added, “but with bullion demand showing signs of slowing as investors look for a new trigger to propel prices higher, we have instead seen increased interest in silver (and) platinum in recent weeks.”

Silver and platinum prices have surged in recent weeks as investors looked for ways to diversify their portfolios. Supply constraints have also pushed prices higher, Hansen said, and metals are increasingly emerging as a “rational hedge against political and financial instability.”

“These commodities are considered politically neutral; unlike sovereign bonds or foreign currencies, they carry no counterparty risk and are not linked to the credit rating of any country,” Hansen said. “While we remain cautious about forecasting an imminent rise to new all-time highs, the macroeconomic backdrop is increasingly favorable for precious metals. »

Precious metals prices also rose as investors reacted to nascent rallies, creating a dynamic trend, according to Steve Sosnick, chief strategist at Interactive Brokers.

Bank of America’s survey of global fund managers in May showed gold was the busiest market for the second month in a row. That ended the Magnificent Seven tech stocks’ 24-month streak as the busiest trade.

During the first quarter of the year, gold recorded its strongest quarterly return since 1986. The yellow metal is up 27.5% this year, following its 27% rise from last year.

Gold has surged this year as investors worried about the uncertain outlook for tariffs.

Gold spot prices in April briefly exceeded a record of $3,500 per troy ounce. Gold was trading around $3,350 per troy ounce on Wednesday.

Gold is seen as a resilient investment and hedge against inflation, with investors betting it will retain its value when prices rise.

While Wall Street is gripped by gold fever, the price of gold has also been boosted by central banks around the world, including in India and China, buying bullion to increase their reserves. Central bank demand for gold has been a key driver of rising prices in 2024, according to the World Gold Council, a trade group.

Another factor that has pushed gold prices higher is the weak U.S. dollar, Sosnick said. When the dollar weakens, commodities like gold tend to do well because it becomes cheaper for foreign investors to buy bullion.

The U.S. dollar index, which measures the dollar’s strength against six major foreign currencies, is down nearly 9% this year.

“Gold continues to consolidate above $3,300, supported by ongoing geopolitical risks, trade uncertainties and a weak dollar,” said Peter A. Grant, vice president and senior metals strategist at Zaner Metals, in a note published Tuesday.

As gold rose, silver began to catch up. Spot silver prices have jumped 24% this year after climbing 21% in 2024.

Silver surpassed $36 per troy ounce this week and reached its highest level since 2012.

Michael DiRienzo, president and CEO of industry group Silver Institute, told CNN that silver prices have soared due to industrial demand and increased economic uncertainty.

“There’s a lot of worry about the global economy and when that happens, people turn to hard assets like silver,” DiRienzo said.

“Silver tends to follow gold upwards,” he added.

Silver is widely used for industrial purposes, including data centers, solar panels and smartphones, and uncertainty over pricing has caused a surge in demand for silver, DiRienzo said.

“It really comes back to its dual use as an industrial metal and a precious metal,” he said. “And both sides of the ledger are sort of coming together to move this prize forward.”

Sustained demand for silver, driven by investors and industry, could push the metal to record highs, according to commodities research firm CPM Group.

“Silver offers an attractive entry point for investors looking for high-priced alternatives to gold, bolstered by its many industrial applications,” CPM Group analysts said in a May note.

People can invest in silver or gold in the form of bars and coins, or in the form of exchange-traded funds. The iShares Silver Trust ETF has surged 25% this year alongside the price of silver. The SPDR Gold Trust ETF has jumped 27% this year.

Interactive Brokers’ Sosnick said he also thinks silver’s rise was driven by momentum as traders tried to join the rally.

Platinum has also grown alongside silver as a less expensive investment than gold.

Platinum gained 36% this year, after falling almost 10% in 2024. Platinum spot prices this week surpassed $1,200 per troy ounce and reached their highest level since 2021.

“While gold has dominated the performance of the metals complex over the last year, we are starting to see laggards like platinum… move out of the basics to catch up a bit,” Jonathan Krinsky, chief markets technician at global financial services firm BTIG, said in a recent note.

The precious metal, used in industries including automobiles and jewelry, recovered largely due to demand outstripping supply. Platinum has surged in recent weeks after the World Platinum Investment Council, a trade group, forecast a deficit for the third year in a row.

“This anticipated shortfall, which will reduce existing airline inventories, is driven by demand from the automotive sector and, in particular, renewed Chinese interest in jewelry, bars and coins,” Saxo Bank’s Hansen said.

“Jewelers are the second largest buyer of platinum after the automobile industry,” Bank of America analysts said Friday. “After years of declining demand, there is anecdotal evidence that interest in platinum jewelry is now rebounding in China.”

“Rising gold prices are encouraging jewelers to diversify, representing a change from historical patterns,” analysts note.