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Silver at USD $50 by Midyear? Find Out Why

While all eyes are on gold, it did not disappoint hitting an all-time American high breaking USD $2900 for over 20 minutes yesterday.  A significant mile stone, it is understandable that investors can’t help but stare at the screen and the price of gold, yet there is a growing number of analysts who are looking the other way at gold’s “poor cousin,” silver.  Many now anticipate that silver will outperform gold on a percentage basis in 2025.  With gold currently trading at $4,551, silver at $51.53, and Platinum at $1,596 let’s examine two pieces of credible evidence behind the claim.

 

Gold to Silver Ratio 

The Gold to Silver Ratio (GSR) has long been a fundamental factor that affects the price of silver.  The GSR has been oscillating between 88 and 90 over the last year.

It is currently 88.78, meaning it takes 88.78 troy ounces of silver to purchase 1 ounce of gold.  Miners are digging 15 ounces of silver out of the ground to 1 ounce of gold, so there is a massive disconnect between the paper markets and the physical reality on and in the ground.  For the whole of the 20th century, the average gold-silver ratio was 47:1. In the 21st century, the ratio has ranged mainly between 50:1 and 70:1, breaking above that point in 2018 with a peak of 104.98:1 in 2020.  So 88.78 indicates there is currently a divergence between the price of gold and silver.  For the GSR to return to a more traditional ratio this divergence would need to snap back closer together, and analysts predict that this will see the price of silver slingshot upward to compliment the price of gold, as opposed to gold dropping down to match silver.

Below is a historical chart of the Gold to Silver Ratio since 1915.  Note how the GSR generally increases during recessions, indicating low silver prices. Then observe how it dropped to 31.6 in April of 2011 after the Global Financial Crisis when silver prices hit all-time highs.  We have already established how current market  trends are mimicking the cycle just before the GFC.  This is why some analysts expect the ratio to drop in the future, citing targets of 1:70 in 2025, then gradually to 1:50, and eventually 1:30 in the long term prior to it rising again.  Let’s step this out to see how it translates to investment figures. If gold prices surge to USD $3000 – 3300, it would put the price of silver between USD $42 – 47 (or AUD $67 – $75 at the current exchange rate).

If you would like an analysis on gold in the Australian market for 2025, stay tuned and look out for next week’s newsletter, or read our past articles on gold.

Industrial use and silver deficits

Silver Bulls know that the grey metal enjoys a dual application of being a store of wealth with industrial use. Currently, industrial use accounts for 55% of the demand for silver.  To this end silver easily overshadows gold which only has 10% of its demand allotted to industrial use.  The use of silver in various industries can be read about in past articles.  What concerns us here are the quantities.  Overall demand for silver in 2024 was in the range of 1.21 billion ounces, the highest recorded quantity in history representing a 7% increase from the year before.

The industrial use of silver accounted for 700 million ounces in 2024.  This amount is set to increase particularly because of silver being the ultimate conductor for electricity.  As such, silver plays an integral role in the all manufacturing involving electronics and energy exchange.  If it has an on-off switch, it likely has silver in it.  As long as first-world lifestyles rely on electricity, industrial demand builds in support for the price of silver in a way that gold does not enjoy.

The final point worth raising is that there is a deficit in silver, meaning demand outstrips supply.  It has for the last four years and 2025 will be no different.  The Silver Institute anticipates an increase in mining production in the coming year pushing total output to a massive 844 million ounces, but compared to last year’s demand of 1.21billion ounces it pales in comparison and points to the fact that silver will become more scarce in the future based on this deficit created by increasing industrial demand.

 

In summary

At this point we come full circle and link increasing scarcity of silver to the decline in the Gold to Silver Ratio.  Hence, the case for silver is made in 2025.  While more volatile than gold, it has historically outperformed gold in the last five bull runs and has more than earned its place as a viable investment option.  If you are looking to balance your investment in gold with another metal that has a potentially greater upside, consider silver.  Perhaps it is not so much the “poor cousin” after all.

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Gold Up More Than $100 Over Tariff Turmoil… Is it Justified

Gold prices soared this week to a new all-time high in Australian markets, increasing by over $100.  While last week’s article celebrated a breakthrough over $4400, this week sees gold currently trading at $4,505.92, silver at $50.95, and platinum at $1,673.93.  These prices are bucking the downward trend that traditionally happens at the end of each month, so what is responsible for the unusual reaction in the markets?  Trump’s threat of 25% tariffs for Canada and Mexico with a deadline of Saturday seems to be enough to put the market into a spin, but is it justified?

The fear that the wide-ranging tariffs on imports could include precious metals is playing out in the market and reflected in the spike in prices.  Regardless of whether tariffs are actually applied to precious metals, traders have been preparing by moving as much stock onto American soil as possible prior to any potential implementation.  While it usually only takes a few days to move bullion held at Bank of England (the UK’s central bank), the wait time has blown out to six to eight weeks.  Since the US election provided a solid win in favour of President Trump, gold traders have moved 12.2 million troy ounces into the Comex commodity exchange in New York, which now has the highest holdings since August of 2022.

Gold is not the only precious metal to get caught up in the hype of the moment, with silver also experiencing a massive trans-Atlantic shift towards New York.  To quote Bank of America, There has been apprehension that liquidity on London’s physical market has fallen as traders have shipped silver to the US in anticipation of trade [tariff] restrictions, a dynamic worth following.”

The below graph shows gold and silver prices in the Australian market over the last four days.

But has the market taken the time to logically step through the implications of placing tariffs on precious metals and assess the likelihood of The US Government actually following through?  It is well established that the current American President has a tendency to not only keep the world guessing, but also negotiate hard and then pull back.  If a US tariff strategy was developed that included precious metals, the reality would be that the market would be left scrambling to source non-tariffed metals to complete current non-tariffed orders (filling like for like).  No amount of preparation would solve this market problem given the shorting positions on gold and silver.  Eventually it would effectively push money out of the United States and into other markets.  This type of behaviour is not in line with what Trump has outlined for his legacy.  Does incentivising traders to hold gold and silver in New York instead of London complement his intentions?  Clearly Trump would not discourage this.  But pushing money outside America is also not on his radar.

So while the threat of tariffs, in addition to currency exchange, pushes the price of gold and silver up in Australia, local investors can thank Trump for the momentary boost.  It is incumbent upon us to remember that many factors, tariffs included, point to toward a volatile but profitable year in precious metals.  Remaining emotionally neutral to the everyday politics of the market will serve us well in 2025.

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Are We Already in Recession? How High Can Gold Go?

Gold reached an all-time high this on Wednesday this week in local markets topping out at $4,401 thanks to a strong US dollar.  With gold currently trading at $4,383.25, silver at $48.84, and platinum at $1,554.50, gold has once again taken centre stage with a robust start to the year.  Some analysts suggest gold prices could be as high as USD $3,380 by the year’s end, while others forecast a little lower.  Last week we touched on a number of factors that will influence the value of precious metals.  Now let’s revisit the most influential fundamental that will push the value of gold higher this year: recession.  How have we found ourselves in this position… again?

 

Federal Reserve rate-cutting cycles

The Federal Reserve goes through cycles of rate increases and cuts in order to pursue its dual mandate of fostering maximum sustainable employment and price stability.  In order to meet these (sometimes opposing) goals, the reality is that they hike rates until “something breaks” or at least threatens to.  This is then followed by a rate-cutting cycle.  The more aggressive a rate cut is the higher the risk is of an incoming financial crisis, thus justifying the cut.  In 2008 the Federal Reserve started cutting rates on September 18th by 50 basis points (a fairly aggressive cut that was followed by the Great Financial Crisis).  Fast forward now to 2024, and the Fed has again cut interest rates by 50 basis points on September 18th, providing a perfect 17-year delta. The below graph illustrates how recessions generally follow rate-cutting cycles:

According to In Gold We Trust, over the last three rate-cutting cycles gold increased in value at an average of 32% within two years of the initial rate cut.  If this trend is applied to the September 2024 rate cut, gold could see prices as high as $4,554 and possibly higher by the end of this year .

 

Overvalued stock markets

Another indicator of recession is whether the stock market is over capitalised.  The stock market can be vulnerable to correction when it grows faster than the economy.  Also known as the “Buffet Indicator,” the Stock Market Capitalisation to GDP Ratio currently reveals this is the case in the US.  To date the indicator stands at 208.3% which is staggering; this is almost double what it was just prior to the Great Financial Crisis (GFC) when it was only 106%.  Australia does not need to feel left out.  The local stock market stands at 108.67%. While this is considered fair it is still more than what the American market was in 2008 and only needs to climb another 30% to match what it was prior the GFC.  Watch to see if our local stock market inflates further during the year to match its 2008 figure.  With significant overvaluation in the US stock market, we can expect America to lead the way when the correction finally comes.

 

Buffet and corporate insiders holding cash

Needless to say is that Warren Buffet is acutely aware of the insane overvaluation of the US stock market.  As CEO of Berkshire Hathaway, Buffet has traditionally positioned the company to hold cash before a recession and uses the above ratio as his main indicator to inform such choices.  As at the third quarter of 2024, Berkshire Hathaway held cash or equivalents of USD $325.2 billion, up by USD $48.3 billion from three months earlier.  And Buffet is not the only one to move into cash.  Stock sales in America by corporate insiders reached an all-time high after the election of then President-elect Donald Trump.  And where there are sellers there must also be buyers.  Recent surveys indicate that 56% of retail investors are bullish on the stock market’s prospects over the next 12 months.  Sadly, we are currently witnessing a transfer of wealth from retail investors to Wall Street purely based on different speculative perceptions of the US stock market.

Note also that Bitcoin and other cryptocurrencies tend to move in near lock-step with the US stock market, especially the NASDAQ where the overlap of investors are the highest.

 

Quantitative Tightening versus Quantitative Easing

Finally, in recent years the Federal Reserve has engaged in quantitative tightening (where they reduce their balance sheet of assets).  Usually this has a reductive effect on the price of gold, which is what makes gold’s performance last year absolutely stellar and very telling of where the market is really at.  While it is not always a marker of a coming recession, it is worth mentioning because of how it fits into a recession cycle.  During recession central banks will be compelled to reverse positions and switch to quantitative easing in trying to manage the corrections in the market.  This is important to precious metals because, amidst the environment of quantitative easing, the role of gold as a safe haven asset is highlighted significantly.

 

In summary, gold appears to be following the same patterns as its bullish trajectory during its 2007 – 2008 history.  Institutional responses to recession include massive increases in government debt, cutting interest rates back to zero (and then into negative territory), and injecting trillions of new dollars into the economy through quantitative easing.  All these responses support the increase of value in precious metals.

With recession signals flashing and the majority of retail investors none-the-wiser, it is imperative that the 1% of investors in the precious metals markets prepare as best they can for what is clearly spelt out for those who wish to see.  Being financially prepared for volatility and recession, in addition to any geopolitical curveballs that usually accompany fiscal corrections, allows one to be in a position of power to help others if one is inclined.  But one of the greatest gifts is the gift of knowledge.  Be the one to educate now and help others to help themselves before recession bites too hard.

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Top Influencing Factors Affecting Precious Metals Prices in 2025

2025 may see a convergence of factors that create perfect conditions for a financial crisis.  With gold trading at $4,374.39, silver hovering just under $50 at $49.97, and platinum at $1,531.35 it’s not necessarily at the forefront of the consumer’s minds.  Indeed, in America precious metals hit some psychologically important markers, again breaking through USD $2700 for gold and USD $30 silver which has investors looking up, as they should, given financial turmoil tends to support the price of gold and silver.

When peering behind the promising outlook for precious metals a grim reality stares back.  This is a reality that serves as a stark reminder why it is more important than ever for consumers to take steps to develop wealth preservation strategies (regardless of how small it may seem) and, if possible, wealth investment goals.

We have covered the topic of recession and currency enough in past articles, but what about cryptocurrency management, shorting stocks and deregulation?  How do these factor into the price of precious metals moving forward?

The Trump administration is upon us.  President-elect Donald J Trump has not been assassinated and is only days away from hosting the most lavish inauguration event in history.  When Trump takes office he is set to unleash a raft of deregulatory initiatives in the financial sector.  But how did we get here when history has proven multiple times that deregulation ultimately leads to financial catastrophe?  In the words of Dennis Kelleher, CEO of Better Markets (a Wall Street non-profit watchdog), “The financial industry uses its economic power to buy political power which it then uses to increase its economic power.”

Two examples of these deregulatory initiatives are the potential elimination the Federal Deposit Insurance Company (FDIC) and the Consumer Financial Protection Bureau (CFPB), both in place to regulate Wall Street and protect consumers.  Watch to see if these bodies exist in the future.  Ultimately, history illustrates that deregulation results in unsustainable artificially high levels of liquidity. And while economic crashes traditionally lag behind the aforementioned, it is an undeniable consequence that has been proven out many times over.

However, one initiative will have precious metals enthusiasts smiling.  Trump has been advised to reduce red tape for mining companies by removing environmental impact reports.  The aim is to reduce dependency on China for rare earth minerals which produces 90% of global supply.  These minerals are necessary for the production of goods with in the solar panel, electronic, and electric vehicles industries, the same industries that have a heavy dependence on silver.

The graph below illustrates rare earth mineral reserves and production by country.

Additionally, it would be remiss to avoid mentioning that Trump has set himself up as the Bitcoin President.  Since late July last year, after the Nashville Bitcoin Conference “Trump pump,” the price of Bitcoin rose over USD $30,000.  Coincidentally, while the Bitcoin price is at all time highs, this week the Department of Justice in America approved a government sale of USD $6.5 billion of Bitcoin.  This is a complete coincidence of course.  Even more interesting is how the government acquired the Bitcoin.  The government seized it from the Silk Road dark net marketplace.  There is a narrative potentially developing here, wherein Bitcoin may be linked in the future to financial corruption, hence calling on regulation of the market.  This is for two main reasons: less than one percent of investors hold Bitcoin; and, according to the FBI, 50% of financial fraud involves cryptocurrency. We remind the reader at this point that the Bank of International Settlements is well founded in instituting more prudential standards for crypto from January 1, 2025.  These standards categorise cryptos into two groups with a tiered approach, the top classification being subject to certain capital requirements (for example, being gold backed).  Moving forward banks are to apply a lot more scrutiny on high-risk assets held in their portfolio such as crypto-currency.  Meanwhile, gold has long held its tier one position as a zero-risk asset.

 

Lastly, another change brought in at the beginning of the year is reporting requirements for large short positions on the stock exchange, including short positions on physical gold and silver.  Rule 13f-2 of the Securities Exchange Commission (SEC) requires short positions exceeding USD $10 million or 2.5% of the company’s share to be reported on a monthly basis from now on.  This is designed to promote transparency that allows companies to identify market manipulation against their stocks and mitigate systemic risk.  Already momentum is building to punish those shorting stocks with a couple of high-profile initiatives already underway in this space.  Trump Media is on the hunt for those naked short selling DJT stock, as well as the potential formation of a class action initiative against those shorting certain precious metal mining companies in Canada.  It does not matter which stock sets a precedent.  It could have significant repercussions in the gold and silver sectors given the almost unprecedented level of shorting against these two metals.

 

In summary, there are many factors that point to the rise of gold and silver and the crashing of the financial system at large, potentially as early as the latter half of this year.  Those invested in precious metals have an advantage if such a scenario were to evolve and would do well to ensure that their loved ones are also looking into wealth preservation strategies as best as possible.  The future could be full of opportunities or heartbreak for those on Main Street, depending on how well they are prepared.