Why gold and silver could be ready to rise – 05/04/2022 at 10:19 a.m.

Why gold and silver could be ready to rise - 05/04/2022 at 10:19 a.m.


(Photos: Pexels - Michael Steinberg)

(Photos: Pexels – Michael Steinberg)

Ned Naylor-Leyland, Head of Gold and Silver Strategy at Jupiter AM, discusses why the price of gold could be approaching a turning point and what that would mean for silver and mining stocks.

Gold has approached its current level (in US dollars) four times since 1971 on an inflation-adjusted basis. More recently, two years ago, its price was close to $ 2,100 / oz and now we are just under $ 2,000 / oz.

It seems to me that there will probably be an outburst in the price of gold that will gain momentum. Why now ? Because the price of gold moves in the opposite direction from real interest rates (the interest rate that a bond pays after the effects of inflation). Real interest rates are negative right now because inflation is high and interest rates are low. This means that most US government bondholders benefit from a negative real interest rate.

People are interested in gold because they are worried about their future purchasing power. At the moment, the market is still wondering if the US Federal Reserve (Fed) will be able to raise interest rates up to seven times this year and if inflation will weaken significantly.

In our view, this is why gold has not yet exploded – the market is focusing on relatively war spectacles. The trigger for gold could be when inflation surprises upwards or the market accepts that seven US interest rate hikes are more or less aggressive. We believe that this will lead to a rise in the price of gold.

We consider gold as “money without risk”. The central banks as well. That’s why they usually have huge gold reserves. They know what is dangerous and what is not. We believe that gold measures the future purchasing power of any currency issued by governments. This is why you see them all degrade at different rates compared to gold. People say that gold has no value, but we believe that gold adds value to everything else.
The demand for natural gold is growing, growing very steadily throughout my career, as people want to have natural gold as compensation and central banks want to buy more of it.

The silver market is ten times smaller than the gold market, but the price of silver is strongly correlated with that of gold. I think when gold comes out of the finish line, you will see participation increase significantly in the market, and silver will also perform better. And this, in a very important way, in our opinion. Unlike gold, where all mined gold is available on the market, silver is not, which is consumed by industry and in small quantities by investors. The silver market tends to be more volatile than the gold market, but overall silver follows the gold movement.

We are convinced that investors have every interest in owning gold and silver. Mining stocks theoretically offer more uptrends, but certainly carry a higher risk of loss. However, when participation in the natural gold market is wider, we believe that the valuation of miners’ shares will benefit.



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