As precious metals experience a significant rally, investors are keen to understand the driving forces behind this surge and its potential longevity. In a recent podcast interview, Chris Puplava, Chief Investment Officer at Financial Sense Wealth Management, recently shared his insights into the precious metals market and its potential trajectory from current levels.
For related podcast, see Smart Macro: Gold Hits New Record, Silver Climbs – Here’s What’s Happening
Record-Breaking Gold Prices and Strong Demand
The year 2024 has now seen gold surpass $2,500 an ounce for the first time in history. Puplava attributes this recent milestone to a range of factors, the first of which he discussed is exceptionally strong demand from India.
"There was a local media report that came out suggesting that gold imports rose year over year in August, 429%," he notes. This recent surge in demand has been a significant factor in pushing gold to new highs in recent months.
As the Times of India reported this year: "RBI has been consistently acquiring gold from the market since December 2017 as part of its strategy to diversify its foreign currency assets and mitigate risks associated with...a noticeable decline in the confidence in dollar-based assets among central banks." (Source)
Fiscal Policy and Its Impact on Gold
The recent announcement of the U.S. government's budget for August also likely played a large role in gold's recent performance. Puplava explains, "The deficit for August alone was $380 billion. ... We are unfortunately spending more than we're bringing in. And that widening is leading to a widening in the budget deficit and that is putting strain on the dollar."
This fiscal situation, combined with record central bank buying and interest expenses exceeding $1 trillion, creates a bullish environment for gold. "Gold is sending a pretty strong signal that this is a problem unlikely to turn around anytime soon."
Global Easing Cycle and the Retail Crowd
A key factor in the current precious metals rally is the global shift towards monetary easing. Puplava observes, "We're entering a global central bank easing cycle... That is what is pushing, in my opinion, precious metals up."
This global trend is reflected in gold's performance against various currencies. Puplava notes, "Gold is up uniformly year to date against every single currency... This is a universal bull market in gold. It is not isolated to the dollar and it is strong and it is broad."
Gold appreciating relative to nearly every major currency
Potential for Further Growth
Despite the significant gains already seen, Puplava believes there's still room for growth in the precious metals market. When analyzing the technical structure of gold’s price action, he suggests, "We could see gold, in this move, go up another four to $500 an ounce... I think we could see gold clear of $3000 going into next year."
He also points out the lack of euphoria or excessive bullish sentiment around this current advance, which typically happens once you reached the end of a bullish trend. Looking at ETF flows, Puplava says, "We have not really seen widespread participation by the retail crowd.”
Gold and silver ETF holdings show lack of retail investor participation
Puplava believes that we are currently in the “institutional phase” of gold’s bullish advance. The “smart money” being the first to get in and drive gold from around $1,000 to $2,000 an ounce between 2016 and 2020. Then, after a three-year consolidation, gold is now being largely driven by the “institutional crowd”, including central banks, hedge funds, and other large global investors.
The third and final phase, which may be characterized by a sudden spike and widespread participation by the retail market, is when it pays to be a contrarian and lighten up. Puplava says that he doesn’t think we are yet at that point in the cycle, however.
Silver and Other White Metals: Potential for Outperformance
Puplava sees potential for silver, platinum, and palladium—the so-called “white metals”—to outperform in the coming months. Regarding the gold-silver ratio, he states, "To get down to the 32 level, we'd have to see silver rise to $81, which is 163% higher." Puplava isn't necessarily expecting that silver will rise to that level but, based on the gold-silver ratio alone, it does suggest the potential for further gains over the months and years ahead.
Similar potential exists for platinum and palladium, with Puplava noting, "We have more than a doubling in the price of palladium and platinum just to get them even close to a one-to-one ratio with gold."
Gold-silver ratio shows silver underpriced relative to gold
Investment Implications and Portfolio Considerations
When it comes to portfolio allocation, Puplava advises caution and tailored approaches. "Research shows that most advisors recommend an allocation of one to 5% for a diversified portfolio. And in times of higher levels of uncertainty and inflation, sometimes that allocation can range from five to ten percent," he said.
Gold and silver have seen very strong moves so far this year and especially in recent months. Investors should pay close attention to the strength of precious metals relative to a broad basket of currencies, retail participation, fiscal spending, and the global easing cycle for cues on how long this current advance may continue. According to Puplava, precious metals remain an attractive investment option, however, proper allocation and diversification are crucial in managing the inherent volatility of this asset class.
To speak with any of our advisors or wealth managers about our outlook and how we can assist you, feel free to Contact Us or give us a call at (888) 486-3939.
To listen to this podcast conversation, see Smart Macro: Gold Hits New Record, Silver Climbs – Here’s What’s Happening for audio.
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Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management. Content is for informational purposes only and does not constitute financial, investment, legal, or other advice. There are risks involved in investing, including the potential for loss of principal. Forward-looking statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Any mention of specific securities or investment strategies is not an endorsement or recommendation.
