In a recent interview, global trading director of Kitco Metals Peter Hug gave some insights into the broader market and what precious metals investors can expect moving forward. Hug noted that gold, like the equity market, has seen little in terms of price movement over the past few weeks. While there is plenty of uncertainty that would normally push gold higher, investors appear to be bracing for either a triggering event or a price dip that would bring buyers in.
Comparing silver to gold, Hug noted that both metals have demonstrated strong support at their respective levels of $24 and $1,850. Hug pointed out that silver’s dips to the $24 level quickly attracted investors, which is just one of the metal’s many bullish prospects.
Silver’s supply tighter than gold’s
Being primarily obtained as a byproduct from prospecting other metals, silver’s supply picture is even more lacking than that of gold. Hug believes the silver market might not necessarily be ready for another bout of massive demand, especially the kind seen in March and April, when investors around the globe initiated a bullion frenzy. With a year or two necessary to ramp up silver production in any significant way, Hug pointed out that there is a lag window that could cause a spike in silver prices should investors come flocking once again.
While these investors could come in the form of retailers and institutions looking for coins and bars, demand could just as easily pick up from manufacturers looking to ramp up their operations after what is undoubtedly the worst year for the manufacturing sector in recent memory. Calls for an economic recovery have been reverberating for months, and despite the threat of more lockdowns, another multi-trillion-dollar stimulus could be brewing. This has both sparked inflationary concerns and spurred expectations that industrial demand for silver will see a significant pickup.
Gold-to-silver ratio points to “historic correction to the upside”
For the whole of the 20th Century, the average gold-silver ratio was 47:1. The current gold-to-silver ratio is so far off historic norms that many experts to predict a historic correction to the upside for silver.
With the likelihood of an accommodative Federal Reserve policy for at least another year, Hug finds both gold and silver’s fundamentals to be on solid ground. Hug expects gold to return to the $2,000 level and test new highs by the end of Q1 2021. Given silver’s resilience around $24 and the combined tailwinds of higher inflation and heightened industrial demand, Hug thinks that a roughly 10% gain in gold prices would push silver higher exponentially higher. Should another influx of buyers materialize in the near-term, Hug doesn’t find it a stretch for silver to move onwards to $35-$40 by the end of the first quarter.