Macro forces driving metals jump still intact: Jefferies

Gold’s sharp pullback last week may have handed investors a new entry point into mining equities because wider economic forces driving the recent “metals melt-up” remain intact, Jefferies argues in a new research note.

The speed and breadth of the rally in gold, silver and copper over recent months – which featured “parabolic” moves and outsized single-day gains – point to a deeper, structural shift rather than a short-term trading phenomenon, Jefferies’ mining analysts led by Fahad Tariq said in a report published Tuesday and titled “A Structural Shift Is Occurring in Metals.”

Two main macro themes are driving demand for metals, Jefferies argues — inflation and what the firm calls “dollar debasement.” An unresolved fiscal situation in the United States is stoking concern over the U.S. dollar among global institutional investors and central banks, Jefferies says. This, in turn is fuelling de-dollarization — or at least a “shift in global reserve preferences,” the firm says.

“Putting it all together, investors and central banks worried about inflation and dollar debasement have only really one option: hard assets,” Jefferies said in its note. “Among investors, for whom Bitcoin was also an option against inflation and dollar debasement, the cryptocurrency has not performed as expected, resulting in a flight to metals.”

Strong case

While the U.S. Federal Reserve recently held rates at 3.5% to 3.75%, it acknowledged inflation remains “somewhat elevated.” But investors appear to be looking ahead to potential rate cuts in 2026, which could lift hard assets by pushing real rates lower.

Meanwhile, concerns around U.S. fiscal stability and policy uncertainty are prompting some institutional investors and central banks to reconsider exposure to the U.S. dollar, the report said. Jefferies flagged the risk of yield curve control if long-term U.S. yields top 5%, a policy that could expand money supply and stoke inflation – reinforcing the case for metals.

Between Jan. 28 and Monday, gold dropped about 10% to about $4,900 per oz., while silver slid about 27% to around $85 per ounce. Gold mining stocks are down roughly 16%.

The decline was sparked by the announcement last week that Kevin Warsh would become the next Fed chair and margin hikes by the Chicago Mercantile Exchange that squeezed speculative positions, Jefferies said.

Conservative outlook

Despite the long-term tailwinds, Jefferies remains conservative in its price assumptions for the yellow metal. It predicts gold will average $4,200 per oz. this year, dropping to $3,000 per oz. by 2031. Both levels are well below current spot prices.

Alamos Gold (TSX, NYSE: AGI) and Barrick Mining (TSX: ABX; NYSE: B) are the gold mining stocks that offer the best potential returns, Jefferies says. Its top picks for copper miners include NGEx Minerals (TSX: NGEX; US-OTC: NGXXF) and Hudbay Minerals (TSX, NYSE: HBM), while its favourite streaming companies are Triple Flag Precious Metals (TSX, NYSE: TFPM) and Royal Gold (Nasdaq: RGLD).