Li Gangfeng, a special analyst for the European Natural Resources Fund Commodity Discovery, wrote that the price of gold in US dollars rose by 25.5% in 2024, setting a new historical high 40 times (peaking at $2790), making it the best annual performance in the past 14 years. Furthermore, last year's return also outperformed US stocks. It is expected that in 2025, there will be a struggle between Trump and the Federal Reserve, which may bring volatility to the US dollar, theoretically benefiting the price of gold. As of last Tuesday, the net long positions of gold, silver, and copper in the US futures market all experienced overall declines, with platinum, palladium, and copper transitioning from net long to net short positions except for gold and silver. In the US futures market, the net long positions of gold funds fell by 1% week-on-week, while the net short positions fell by 5%. As a result, fund holdings fell from a net long position of 573 tons to 567 tons, the lowest level in the past 26 weeks and also the 64th consecutive week of net long positions (previously 46 consecutive weeks of net long positions), accounting for 62% of the historical high of 908 tons in September 2019. As of December 31, the price of gold in US dollars has risen by 27.1% this year (up 27.4% the previous week), while gold fund net long positions have accumulated a 9.7% increase (up 11.1% the previous week). Silver, which is highly correlated with gold prices, saw a stronger fluctuation than gold. The net long positions of silver funds in the US futures market fell by 4% week-on-week, while the net short positions increased by 11%. As a result, fund holdings decreased from a net long position of 3202 tons to 2616 tons, the lowest level in the past 44 weeks and the 43rd consecutive week of net long positions, accounting for 17% of its peak. As of December 31, the price of silver in US dollars has risen by 21.5% this year, with silver fund net long positions accumulating by 2.8% (up 7.3% the previous week) and net short positions up by 6.2% (down 4.6% the previous week). The net long positions of platinum funds in the US fell by 17% week-on-week, while the net short positions increased by 10%, resulting in a reversal from a net long position of 3 tons to a net short position of 14 tons. Historically, the net short positions of platinum funds in the US have been maintained for the longest consecutive period at 31 weeks (from April 2018 to October 2018). The net short positions of palladium funds in the US fell to 35 tons, the lowest level in the past 16 weeks. Li Gangfeng believes that even though the bull market in palladium has ended, if palladium continues to maintain a significant net short position, it may be difficult for other precious metals to completely turn around. Palladium fund holdings have remained in net short positions for 107 consecutive weeks, marking the longest net short position in history. The net long positions of gold funds in the US futures have risen by 35% from the beginning of the year to now (accumulating 101% in 2023). The net long positions of silver funds in the US futures have fallen by 1.2% from the beginning of the year to now (accumulating 44% in 2023). The net long positions of platinum funds in the US futures have fallen by 152% from the beginning of the year to now (accumulating 7% in 2023). The net long positions of copper funds in the US futures have fallen by 132% from the beginning of the year to now (accumulating 0.3% in 2023). Basically, from the above data, it is clear that despite global inflation heating up in recent years, prices of various metals have experienced varying degrees of decline, mainly due to the lack of funds in the futures market to drive leverage. If someone had a crystal ball a few years ago and knew about the current global inflation surge, conflicts, and uncertainties, and went long on precious metals in the futures market, they would most likely have lost money. The most ironic thing is that since the spread of the epidemic in 2020, the net long positions of precious metals in the US futures have continued to decline, reflecting that funds have intentionally prevented precious metals from rising. CFTC weekly reports have shown that the majority of the time in history, copper in the US futures market has been in a net short position, which is not surprising given that copper was in a bear market from 2008 to 2016. However, starting from 2020, due to the impact of the global epidemic affecting the supply side and mining operations, along with market expectations for strong demand for copper from electric vehicles, the price of copper has risen, reaching new historical highs. However, the current global investment concept is that the world is entering an economic recession, which will reduce demand for commodities. The abrupt decline in net long positions of copper funds cannot rule out the possibility of the Chinese government introducing stimulus economic policies in the first quarter of 2025 to support copper prices. However, it is expected that by the second half of the year, the US copper will see net short positions from funds. If you were to ask ten industry experts, nine of them would probably say they are optimistic about the future of copper, but Li Gangfeng is that tenth expert. 2024 may be the last good year for copper, and there may be a significant decline starting from next year - because the current price of copper is not cheap for Chinese midstream manufacturers and downstream demand, and they will continue to seek cheaper substitutes (such as aluminum). Unless India, the United States, the Middle East, or Africa embarks on a large-scale infrastructure revolution, copper prices in the coming years may be on a downward trend. Li Gangfeng has updated an important insight into the short-term direction of gold prices with the gold mining stocks indicator. Last week, the price ratio of gold in US dollars to North American gold mining stocks fell: As of Friday (the 3rd), the gold price/North American gold mining stocks ratio was 18.66X, a 1.1% decrease from 18.87X on the 27th. It has accumulated a 16.5% increase in 2024. For the entire year of 2023, there was a cumulative increase of 13.2% (6.4% in 2022), indicating that mining stocks have lagged behind physical gold returns for at least three consecutive years. Since around 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 faced similar situations. Li Gangfeng believes that one of the reasons for this is the increasing emphasis in the investment sector on environmental, social responsibility, and corporate governance (ESG), such as in 2021 when 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 companies pledging to invest only in companies and industries that prioritize ESG. With Trump being elected, theoretically, this is good news for mining companies because the market believes that Trump emphasizes engineering development and disregards environmental protection (from a speculative perspective, one can pay attention to some projects in the US that were previously unable to develop due to various reasons, anticipating the possibility that policies will be favorable). However, the market also believes that there will be a stronger US dollar and reduced consumption (due to increased tariffs), which will not be favorable for commodity prices. Moreover, in an environment where the market is bullish on US stocks, the mining sector can continue to be overlooked. The future price of copper will depend on whether the US will launch major infrastructure projects. Li Gangfeng believes that tracking the stock prices of overseas gold mining stocks is a reliable forward-looking tool. If the price of gold continues to rise but gold mining stocks experience a sharp decline, then we need to be cautious.Gold-to-silver ratio The gold-to-silver ratio is an indicator of market sentiment. Historically, the gold-to-silver ratio has run at levels ranging from approximately 16 to 125 times: Generally, the higher the market fear, the higher the gold-to-silver ratio, for example in 2020, the spread of the novel coronavirus globally led to a historical high in the gold-to-silver ratio, which briefly surpassed 120 times. As of last Friday, the gold-to-silver ratio index was 89.2, a decrease of 0.1% compared to the previous week, and an increase of 4.7% year-to-date 2024. The cumulative increase in 2023 was 14.0%, marking at least two consecutive years of silver underperforming gold, indicating that market risk sentiment remains high. It is important to note that both the US dollar gold price/North American gold mining stock ratio and the gold-to-silver ratio have shown a clear trend of rebounding from the bottom. The financial markets have clearly entered a stage of trading during an economic recession. The Federal Reserve may maintain interest rates in January At the time of writing, the market believes the probability of the Federal Reserve maintaining interest rates on January 29 is 88.8% from the previous Friday: This is the probability distribution chart of interest rates for December 2025 that the futures market predicts at the time of writing: As of last Friday, the market's estimate of the number of rate cuts by the Fed next year remained at 1-2 cuts as the highest probability estimate. After a long period of verification, the futures market's predictions of the trend of US interest rates, especially long-term expectations, are generally incorrect. Therefore, Li Gangfeng boldly predicts that the number of interest rate cuts in the US next year will exceed current market expectations, especially if there is a stock market crash next year. It is expected that there will be a struggle between Trump and the Federal Reserve in 2025, which may bring volatility to the US dollar, theoretically benefiting the price of gold. The US dollar gold price rose 25.5% in 2024, hitting a historical high 40 times (peaking at $2790), making it the best annual performance in the past 14 years, while returns from gold were also better than US stocks last year. The outstanding performance of gold in 2024 is mainly due to market concerns about geopolitics, and more importantly, the belief that the US is entering an interest rate cut cycle. Not only is the opportunity cost of holding gold beginning to decrease, but the US dollar was weak and ineffective before Trump won the election. Therefore, strong demand for gold from central banks and investors globally has been high last year, especially in India which showed strong demand for gold throughout the year. Furthermore, the Indian central bank was one of the biggest buyers of gold last year, as they increased their gold reserves by 72.6 tons in the first 11 months, compared to 16 tons in 2023 and 33 tons in 2022, leading to an increase from 7.8% to 10.2% of gold in India's foreign exchange reserves. Even US allies significantly increased their gold reserves, Li Gangfeng wonders why some central banks of US allies did not increase their gold purchases earlier. In theory, a country can nationalize the gold of domestic banks at any time, but it is not a reassuring move for the market, as it attacks the hearts of its own people rather than others. In addition, the price of gold in China has recently returned to higher levels compared to international prices. In the difficult global economic situation in the next four years, it may be a strategy to consider buying when the price of gold is weak. If the market is concerned about the US balance sheet and the US dollar, no president can change the course of history. During the previous presidency of Trump, the national debt increased by $7.8 trillion, along with tax cuts and unlimited other expenditures, leading him to set a historical record as the third largest increase in fiscal deficit among US presidents in office. Yet from an investment perspective, fundamentals are not important, what matters is what the market believes at the moment. The market believes that with Trump's election, the US dollar will rise, bond prices will fall, commodities will fall, and US stocks and cryptocurrencies will rise. Earlier this year, Li Gangfeng predicted in this column that if Trump were elected, the market might give him a six-month honeymoon period, so the strong performance of US stocks and cryptocurrencies could be maintained until around the end of April next year; whereas metals, unless geopolitics escalate again, may have already passed their short- to medium-term peak. According to historical statistics, the average return of gold in the first year of each new US president's tenure is only slightly above 1%, making it the worst-performing year of the four-year term. In the next 12 to 24 months, the biggest challenge will be if the US begins to cut interest rates while inflation pressures resume, where will the Federal Reserve go from there? In 2025, if the US starts to cut spending, US stocks experience a large decline, the Federal Reserve cuts rates less than expected, and geopolitical risks increase, there is little doubt that the US dollar will rise or remain at high levels. From March to May 2025, global financial markets may experience significant volatility (downward), so it is advisable to gradually reduce risk assets during these months and preserve profits.