This year has seen notable increases in the prices of certain non-ferrous metals and precious metals, with significant fluctuations noted since April, coinciding with rising global uncertaintiesThe volatility surrounding various commodities has further intensified under these conditions.

According to Cheng Xiaoyong, Deputy General Manager of the Futures Research Center at Guangzhou Financial Holdings, the current bullish trend in non-ferrous metals arises from a harmonious interaction of both physical and financial market attributesThe physical market attributes are characterized by concerns over tightening supplies and an expectation of accelerating demand growthIn the realm of precious metals, an escalation in geopolitical crises has led to heightened demand for safe-haven assets, while a decline in dollar credit, exacerbated by ballooning U.Sdebt, prompts central banks and private entities to acquire gold as a hedge against dollar credit risk.

Looking ahead to the second quarter of 2024, the sentiment in the global market appears overwhelmingly bullish for key commodities such as copper, aluminum, gold, and silver

Analysts suggest that players in the industry are preemptively placing bets on several factors, including an anticipated loosening of global macroeconomic policies, a rise in resource protectionism, and geopolitical trade instability, all of which lead to increased expectations of price hikes for critical commodities in 2024. Gu Fengda, Chief Analyst for Non-Ferrous Metals at Guosen Futures, elaborated on these trends.

In China, the heightened volatility in prices for certain precious and non-ferrous metals has drawn regulatory scrutinyFollowing the implementation of appropriate risk control measures, the Shanghai Futures Exchange (SHFE) indicated it would optimize and adjust risk management strategies, increasing oversight on improperly declared control accounts and cracking down on any actions that violate legal frameworks.

The trajectory for metals in the coming months remains in question

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Since February of this year, international gold prices have surged dramaticallySpecifically, gold futures on the COMEX reached a historic high of $2,448.80 per ounce on April 12, although some corrections have followed starting April 22. From March onwards, the cumulative increase was more than 10%.

Meanwhile, the primary contract for gold futures in Shanghai began to rise significantly in March, hitting a peak of 588.28 yuan per gram on April 15, before experiencing moderate fluctuationsSilver prices have mirrored these movements, with the leading contract for silver futures on the SHFE climbing steadily since March and reaching a high of 7,790 yuan per kilogram on April 15, followed by a slight retreat.

Gu Fengda notes that the recent peaks in gold and silver prices have engendered a short-term squeeze situation, raising caution that a subsequent wave of short covering could potentially amplify price corrections

He suggests that this week, market participants focused on gold and silver should consider cashing in on profits.

Cheng Xiaoyong emphasizes that the recent surge in gold and silver prices is markedly different from previous trends, noting that real dollar interest rates have risen in tandem with the precious metalsHe identifies scarcity, monetary properties, and safe-haven attributes as driving forces that could underpin further increases in gold pricesUnless there is a restoration of confidence in dollar credit or a resolution to geopolitical tensions, external pressures—such as the looming risk of interest rate decreases from the Federal Reserve later in the year—remain significant.

In addition to precious metals, prices for non-ferrous metals have also skyrocketedStarting in March, copper futures in Shanghai exhibited strong upward momentum; after a minor correction at the end of March, the market surged forward again and set a new high of 81,050 yuan per ton on April 22.

Similarly, the main contract for tin futures has shown impressive growth this year, with significant price increases since March and a substantial rise in April, which culminated in a peak price of 286,690 yuan per ton on April 22 before entering a period of volatility.

Cheng notes that the current bull market in non-ferrous metals is a result of both demand-side and supply-side factors

On the supply side, there are tightening supplies from mines, expansions in some smelting capacities, and relatively low inventory levelsDemand is bolstered by significant investments in the new energy industry.

From a financial perspective, despite stubborn inflation and resilient U.Seconomic indicators potentially delaying rate cuts, recent Federal Reserve minutes suggest a high probability of halving the current balance sheet in the second quarterThe possibility of rate cuts remains, as the high levels of public sector debt in the U.Sindicate that elevated interest rates cannot persist indefinitelyConversely, in case of unexpected rebounds in U.Sinflation, the Federal Reserve might find it challenging to continue raising rates, making non-ferrous and precious metals attractive as hedging assets against inflationary pressures, Cheng argues.

As for investment operations, Gu Fengda advises that if copper futures break through the 75,000 and 78,000 yuan per ton levels, they should seek to stabilize around the 80,000 yuan target

Similarly, with aluminum futures crossing the 20,000 yuan threshold, they may target resistance near 21,000 yuanHe recommends that short-term holders of copper and aluminum futures be cautious about realizing profits to manage exposure effectively while maintaining bullish positions on out-of-the-money contracts—closely monitoring global macroeconomic policies, structural shifts in industries, and the ongoing tug-of-war in financial markets.

In light of the ongoing volatility, regulatory measures have been ramped upThe SHFE has responded to these price fluctuations within the gold and certain non-ferrous metals markets with tighter controls on intraday trading limits, as announced in their April 10 notification.

Subsequent announcements on April 16 included policies to increase the daily price fluctuation limits and transaction margin ratios for various commodities, including gold and silver

The exchange also raised fees for closing certain contracts amid increased market turbulence and external uncertainties.

On April 18, they issued additional measures to heighten transaction fees for specific futures contracts while also providing risk warnings to remind all market participants to exercise caution and engage in rational investment strategiesApril 25 saw the SHFE release new notices regarding trading conditions during the Labor Day holiday, making adjustments to fluctuation limits and margin levels across various futures contracts.

In addition to imposing suitable risk management measures, the SHFE is working to expand delivery capabilities and storage capacitiesFor instance, certain logistics companies in regions like Xinjian and Guangdong have increased their storage capacities considerably for aluminum and tin this year, aiming to meet the growing needs of the physical market.

The SHFE has also been actively approving various certified brands related to non-ferrous and precious metals throughout the year, while diligently pursuing registrations for critical materials like copper, nickel, and aluminum based on market conditions, according to relevant SHFE officials.

Ensuring compliance, the SHFE is cracking down on illicit trading practices