Copper, Silver, and Gold Markets Brace for Supply Deficits Amid Rising Demand
New copper projects are set to bring additional production to the market over the next decade, but supply growth is likely to lag behind demand due to the green-energy transition, according to BMI, a unit of Fitch Solutions. Projects in Congo and Chile are expected to boost copper production from an estimated 27.8 million metric tons to 29.6 million tons by 2026. However, this will still fall short of the anticipated consumption of 30.2 million tons. BMI has revised its 2024 copper price forecast to $9,600 per ton, up from $9,200 per ton, citing the anticipated start of U.S. rate cuts. "In the longer term, we expect prices to reach $17,000 per ton in 2033, as the structural deficit persists due to a strong demand outlook as the green transition accelerates," BMI notes.
In the silver market, Morgan Stanley analysts forecast an even wider supply deficit in 2024, following three consecutive years of shortfalls. Silver prices, which have risen 30% year-to-date, are trading around Morgan Stanley's fourth-quarter price target of $31 per troy ounce. The bank's analysts see potential for further price increases, with a bull case target of around $39 per ounce if demand from the solar sector strengthens and high prices do not spur additional market supply. Spot silver is currently up 0.1% at $31.06 per ounce.
Central banks are expected to continue adding to their gold reserves despite a recent slowdown in purchases. Citi analysts estimate that central banks will buy a record 1,100 metric tons of gold in 2024, up 5.8% year-on-year. The market could even see purchases exceeding 1,250 tons in a bull case scenario over the next year. Central-bank gold demand in the second quarter fell by 63 tons to 227 tons from a record high in the first quarter. However, buying could see a seasonal lift in the third quarter. "Official sector gold demand has steadied to a record 28-30% of gold mine production since 2022, with the potential to increase towards 35% (bull case) over the next year on trade wars and concerns about U.S. fiscal," Citi analysts note.
Gold prices edged higher in the early Asian session, buoyed by signs of demand from bullion ETFs. Inflows from these ETFs have begun to emerge, and buying interest could increase into the quarter-end and year-end, according to Citi Research analysts. Citi remains 'constructive' on the physical uptake of gold over the next 12 months, anticipating a potential Fed rate-cut cycle and U.S. labor-market headwinds. Citi's base-case target for gold prices is $2,800 to $3,000 per ounce by mid-2025. Spot gold is currently up 0.1% at $2,365.52 per ounce.
