The European natural resources fund Commodity Discovery's exclusive analyst Li Gangfeng wrote that market expectations for the magnitude of the Fed rate cut next year have changed, with the probability of a rate cut to 3.75-4.25% in the US at the end of 2025 falling from 66.6% to 64.2%, and the probability of a rate cut to 3.5-3.75% increasing from 10.5% to 17.3%. In the event of the US cutting spending in 2025, a significant drop in the stock market, the Fed rate cut falling short of expectations, and geopolitical risks escalating, the rise/maintenance of the US dollar is essentially without doubt. There may be significant volatility (decline) in the global financial markets in March-May 2025, and it is advisable to gradually reduce risk assets during these months to protect profits. Data source: CFTC/LSEG Workspace *For comparison purposes, the metal equivalent of COMEX gold is divided by 10, and the metal equivalent of COMEX silver is divided by 100. **Currently, the reference value of Nymex palladium is very low. As of last Tuesday, the net long positions of US futures funds in gold, silver, and copper all declined, while platinum switched from net short to net long. The net long positions of gold futures funds fell 8% week-on-week last week; meanwhile, short positions rose 21%, resulting in fund holdings dropping from a net long of 634 tons to a low of 573 tons in the past 25 weeks, the lowest level since 63 weeks ago, and the 63rd consecutive week of net long positions (previously 46 weeks of net long positions), representing 63% of the historical high of 908 tons in September 2019. As of December 24, the price of gold in US dollars had risen 27.4% this year (up 28.1% the previous week), while net long positions in funds had accumulated 11.1% over the same period (up 20.7% the previous week). Silver, which is highly correlated with gold prices, has historically seen stronger fluctuations than its cousin. Net long positions of silver futures funds in the US fell 2% week-on-week last week; short positions rose by 3%, leading to fund holdings dropping from a net long of 3,434 tons to 3,202 tons, the lowest level in the past 42 weeks and the 42nd consecutive week of net long positions, representing a peak of 21%. As of December 24, the price of silver in US dollars had risen 24.7% this year, with net long positions in silver funds accumulating 7.3% (up 9.7% the previous week) and short positions falling by 4.6% (down from 7.5% the previous week). Net long positions of platinum futures funds rose 7% week-on-week, while short positions increased slightly by 1%, resulting in a shift from a slight net short position to a net long position of 3 tons last week. Historically, the net short positions of platinum funds have been maintained for 31 consecutive weeks (from April 2018 to October 2018). Net short positions of palladium funds fell to 32 tons, the lowest level in the past 15 weeks. The author believes that even though the bull market in palladium has ended, if palladium continues to maintain a huge net short position, it may still be difficult for other precious metals to completely turn the tide. Palladium fund holdings have been in a net short position for 107 consecutive weeks, the longest period in history. As of now, net long positions in US futures gold funds have risen by 36% since the beginning of the year (up 101% in 2023). Source: CFTC/LSEG Workspace Net long positions in US futures silver funds have risen by 21% since the beginning of the year (down 44% in 2023). Source: CFTC/LSEG Workspace Net long positions in US futures platinum funds have fallen by 87% since the beginning of the year (down 7% in 2023). Source: CFTC/LSEG Workspace Net long positions in US futures copper funds have fallen by 92% since the beginning of the year (down 0.3% in 2023). Source: CFTC/LSEG Workspace It is clear from the above charts that even though global inflation has been on the rise in recent years, metal prices have fallen to varying degrees, mainly due to the lack of funds in the futures market to drive long positions and leverage. If someone had a crystal ball several years ago and knew about this year's global surge in inflation, conflicts, and uncertainties, and invested in precious metals in the futures market, they would most likely have lost money. Ironically, since the spread of the pandemic in 2020, net long positions in precious metals in the US futures market have continued to decline, reflecting an intentional effort by funds to prevent precious metals from rising in value. The CFTC's weekly reports on copper futures in the US have been going on since 2007. Because copper was in a bear market from 2008 to 2016, it's not surprising that net short positions in US copper futures have historically been mostly observed. However, since 2020, due to the global impact of the pandemic on the supply side and mining operations, coupled with market expectations of strong demand for copper in electric vehicles, the price of copper has risen to new historic highs. However, the current global investment concept is that the world is entering an economic recession, leading to reduced demand for commodities. As net long positions in copper funds have seen a sharp decline, it is not ruled out that stimulus policies to boost the economy in China in the first quarter of 2025 may support copper prices, but it is expected that by the second half of the year, there will be net short positions in US copper. If you were to ask ten experts in the industry, it is likely that nine out of ten would say they are optimistic about the future of copper, but I am the tenth one who is not. There may be a chance that 2024 is the last good year for copper, and next year there may be a significant decline because the current price of copper is no longer cheap for manufacturers in China's midstream and downstream industries, who will continue to seek cheaper alternatives (such as aluminum). Unless India, the United States, the Middle East, or Africa embark on a large-scale infrastructure revolution, copper prices may continue to decline in the coming years. The author has updated the indicator for short-term gold prices that provides important insights into the direction of the gold mining stocks. Last week, the US dollar gold price/North American gold mining stock ratio saw an increase: Data source: LSEG Workspace As of Friday (27th), the gold price/North American gold mining stock ratio was 18.87X, up 0.2% from 18.83X on the 20th, returning to the level of March 2024. The ratio reached a new high this year of 19.22X 45 weeks ago (closing price). Currently, it has increased by 14.9% year-to-date. It increased by 13.2% for the full year in 2023 (6.4% in 2022), with a peak ratio of 17.95 in 2023, and the lowest ratio in January of 13.9 in 2023 and 2022.9 times and 11.24 times.Actually, starting from 2009/2010, the trend of mining stocks has always lagged behind the commodities themselves, and in recent years, even oil/natural gas production companies have experienced similar situations. The author believes that one reason for this is the rising importance of Environmental, Social, and Governance (ESG) considerations in the investment community. For example, in 2021, Blackrock and the UK parliament pledged not to invest in coal mines and oil production companies anymore. And they are certainly not the only fund company committed to investing only in companies and industries that prioritize ESG. With Trump being elected now, theoretically it's good news for mining companies because the market believes that Trump prioritizes engineering development over environmental protection (speculators should pay attention to some projects in the US that have not been developed for various reasons, market anticipates policy easing). But the problem is that the market also believes that there will be a strong dollar, reduced consumption (due to increased tariffs), which is not favorable for commodity prices. And in the overall market optimism towards the US stocks, the mining sector may continue to be ignored. The future price of copper depends on whether the US will push through large infrastructure projects. The author believes that tracking the overseas gold mining stocks is a reliable forward-looking tool. For example, if the price of gold continues to rise but gold mining stocks experience a sharp drop, caution is needed. Gold-Silver Ratio The gold-silver ratio is an indicator of market sentiment. Historically, the gold-silver ratio has ranged from approximately 16-125: Data source: LSEG Workspace In general, the higher the market panic, the higher the gold-silver ratio, such as in 2020 when the COVID-19 pandemic spread globally, causing the gold-silver ratio to reach a historical high of over 120. Last Friday, the gold-silver ratio index was 89.2, up 0.5% from the previous week, with a year-to-date increase of 2.8% in 2023. The ratio increased by 0.5% last week, with a year-to-date increase of 2.8%. In 2023, the ratio increased by 14%. The highest and lowest values in 2023 were 91.08 and 75.93, respectively. In 2022, the ratio decreased by 3.1%. It should be noted that both the USD price of gold/North American gold mining stocks ratio and the gold-silver ratio are showing signs of bottoming out. The financial market has clearly entered an economic recession phase. The US may maintain interest rates in January At the time of writing, the market's probability of the Federal Reserve maintaining interest rates on January 29 has slightly decreased from 91.4% two weeks ago to 88.8% last Friday: Image source: CME Group This is a chart showing the probability distribution of interest rates in December 2025, as predicted by the futures market: Image source: CME Group As of last Friday, there has been a shift in the market's prediction of the magnitude of rate cuts next year for the Federal Reserve. The market now believes that there will be more rate cuts in 2025 compared to the previous week. The probability of the US reducing interest rates to 3.75-4.25% by the end of 2025 has decreased from 66.6% to 64.2%, while the probability of reducing rates to 3.5-3.75% has increased from 10.5% to 17.3%. After a long period of verification, it is generally found that the futures market's predictions on US interest rate trends, particularly for the longer term, are often wrong. Therefore, the author boldly predicts that the number of interest rate cuts in the US next year will exceed the current market expectations, especially if there is a stock crash next year. Regardless of the concerns about the US balance sheet and the US dollar, no president can change the historical flow. During the previous term of Trump's presidency, the national debt increased by $7.8 trillion due to tax cuts and unrestricted spending, which led to him setting a record as the third-largest increase in fiscal deficits by a US president during his term. However, from an investment perspective, fundamentals are not important. What is important is what the market believes at the moment. The market believes that with Trump being elected, the US dollar will rise, bond prices will fall, commodities will fall, and US stocks and digital currencies will rise. The author previously predicted in this column that if Trump were elected, the market might give him a six-month honeymoon period, so the strength of US stocks and digital currencies might continue until around the end of April next year; while metals may have already passed their short-to-medium-term peak unless geopolitical tensions rise again. According to historical statistics, the average return of gold prices in the first year of each US president's term is only a little over 1%, making it the worst-performing year of the four-year term. The biggest challenge in the next 12 to 24 months will be if the US begins cutting interest rates, but inflationary pressures return, where should the Federal Reserve go? In 2025, if the US starts cutting spending, a significant drop in US stocks occurs, the Fed's rate cuts are not as expected, geopolitical risks increase, etc., there is no doubt that the US dollar will rise/maintain its high position. In March-May 2025, global financial markets may experience significant volatility (decline), so it is advisable to gradually reduce risk assets during these months to protect gains.