In theory and, often as we prefer, in practice, corporate profits drive stock prices.
It seems that recently, and perhaps even more in 2025, macro issues will drive the direction of markets and sector trends, a bullish factor for two overlooked precious metals we’ll explore today.
Identifying trends and allocating money to the right sectors and picking the leaders in these sectors is increasingly important. Those who follow the Fed and try to predict the direction of interest rates are one example of this macro-oriented strategy.
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As expectations grow that the Federal Reserve will take action this week with an interest-rate cut, let’s dig a bit deeper and look at what will drive both interest rates and profits going forward. It won’t be the Fed but rather the $28 trillion U.S. Treasury bond market that will determine interest rates.
These institutional players read the tea leaves, and it seems that they collectively are looking for incrementally higher rates to compensate for America’s escalating debt.
China exported $3.6 trillion worth of goods and services as its trade surplus reached almost $1 trillion last year, while America will post a trade deficit of about $1 trillion. While China ran a deficit in oil and other natural resources, its trade surplus in manufactured goods represented 90% of exports and 10% of China’s economy. Classic mercantilism.
Macro, of course, can cut both ways. While high-wire budget battles on Capitol Hill play out, U.S.-China tensions escalate and pull back, and tariff threats dominate the headlines, this could boost volatility in equity markets. Hopes for less of the above, as well as less corporate regulation and lower taxes for investors, are also actions that could boost markets.
There will be surprises. For example, Goldman Sachs strategists are predicting that Chinese stock markets will rise about 20% by year-end. Another key issue will be whether artificial intelligence (AI) meets its elevated expectations. This has implications well beyond AI stocks, encompassing related sectors and products such as semiconductor chips, data and energy. All of the above have one thing in common - they depend on critical metals.
I expect gold and silver will likely move higher this year, but two overlooked precious metals are positioned for even bigger gains.
2 Overlooked Precious Metals Positioned for Big Gains
Supply and demand signal that palladium and platinum will outperform as EV demand slows and South Africa faces some production challenges. Platinum and palladium are usually considered rarer, more useful, and, therefore, pricier and more valuable than gold. But platinum isn’t just cheaper than gold right now ... It’s trading near the lowest discount to gold in history. By which I mean the price of platinum divided by the price of gold is near the lowest it’s been over nearly four decades. We can capture the relative price gap between gold and these critical minerals and capture the potential snapback - what analysts refer to as “reversion to the mean.”
Looking back, platinum has usually traded at a premium to gold during the last three decades, and at times, the premium was significant, with platinum trading for more than double the price of gold in the early to mid-2000s.
That trend then largely reversed - bringing us to a discount that has gotten extreme. The only other time we saw a similar situation was in 2020, when platinum traded for a 60% discount to gold. Then, platinum rallied 121% over the next 11 months, while gold surged 25%.
The setup is similar for palladium. This critical metal has crashed even worse than platinum in recent years. Platinum and palladium are both poised for major moves higher. And if you’re a contrarian investor looking to invest in real assets, you need to consider owning both through the precious metal ETF Sprott Platinum and Palladium ETF (SPPP).
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