Defensive commodities like gold will continue to outperform more cyclical metals through the second half of the year, according to one research firm.
Roukaya Ibrahim, Commodity Strategist at BCA Research, said growing weakness in the Chinese economy and elevated import tariffs in the U.S. will reduce demand for industrial metals and oil relative to safe-haven assets.
“In order to abandon our defensive stance and turn more constructive on cyclical commodities, we would need to change our global manufacturing outlook,” she said in her report. “We are not there yet.”
Although gold continues to consolidate in a range between $3,300 and $3,400, Ibrahim said that she expects it's only a matter of time before prices break out and retest the April all-time highs of $3,500 an ounce.
“Our bet is that the next big move will be a breach above the resistance level, rather than a prolonged slump. The main driver of the yellow metal’s nearly three-year rally is still in play. Specifically, central banks’ appetite for gold remains insatiable,” she said. “If anything, President Trump’s capricious policy pivots should amplify this trend by damaging foreign central banks’ trust in the US administration, thereby reducing their willingness to hold US assets.”
The Montreal-based research firm expects official demand to provide solid support for gold, creating value for institutional and retail investors as demand in gold-backed exchange-traded funds has grown at its fastest pace since 2020, when it hit record levels.
Ibrahim noted that investment demand remains strong even as U.S. Treasury yields remain elevated. Higher bond yields raise the opportunity costs of holding gold, a nonyielding asset.
“This breakdown in the typically inverse relationship between gold ETF flows and US real rates signals that institutional and individual investors are currently willing to pay a premium for gold’s safe haven characteristics,” she said.
While higher bond yields could eventually present a challenge for gold, Ibrahim said that gold investors should pay more attention to a weaker U.S dollar.
“Our Emerging Markets Strategists have argued that the US dollar trading regime is changing and that the greenback will continue facing downside pressure ahead,” she said. “A weaker USD will make the yellow metal more affordable for non-US buyers, partially offsetting the drag on demand from record-high prices.”
Although BCA is long gold/short copper, the analysts have a nuanced approach. They are short copper on the London Metals Exchange as it underperforms Comex copper futures.
Last week, President Donald Trump announced that he would impose a 50% tariff on all copper imports, effective August 1. Since his announcement, an unprecedented amount of copper has flowed into New York warehouses. Premiums between copper futures in the U.S. and London have reached record highs. The global trade war has created a significant arbitrage opportunity as investors buy copper on the LME and sell to the U.S.
“We remain underweight oil and copper, and very negative on iron ore in our 12-month commodity view matrix,” said Ibrahim. “On the flip side, we are very overweight gold and also favor its more industrial cousin, silver, in this matrix.”
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