【MACRO Alert】Wall Street's New "Gold Rush" Continues! Silver Emerging as Investors' New Favorite!?

Perched above Singapore's Changi Airport stands an impressive 32-meter tall vault, its exterior wrapped in smooth agate, catching the eye of all who pass by. This massive vault, designed for institutions with the highest demands for confidentiality and privacy, officially opened last month. It not only meets the growing need for high-security storage facilities among the world's ultra-wealthy but also reflects the current trend of investing in physical gold.

This six-story structure, with the capacity to hold 10,000 tons of silver and 500 tons of gold, is so large that it could accommodate more than one-third of the global annual silver supply and half of the gold purchased by central banks in 2023. Constructed by Silver Bullion Pte Ltd, the 180,000 square foot facility may be one of the world's largest vaults. Gregor Gregersen, the company's founder, has reported a significant influx of inquiries from clients since the vault's opening.

Meanwhile, on Wall Street, a new “gold rush” is underway, rivaling the 1849 California Gold Rush in fervor. This year, gold prices have soared by over 20%, reaching a new all-time high last Friday. On Tuesday, during the European trading session, spot gold hit $2510 per ounce, setting another record. Behind this phenomenon is the bet on the Federal Reserve's interest rate cut, a policy change expected to further boost gold prices. Typically, gold performs well during periods of a weakening dollar, which often occurs when the Federal Reserve lowers interest rates.

Global geopolitical uncertainties and the upcoming U.S. elections may also further support gold prices. Gold is often seen as the safest haven asset, a tangible asset with limited supply, distinct from government-backed currencies. Consequently, China, India, and other emerging markets have been increasing their gold reserves to reduce their reliance on the U.S. dollar.

Alex Kuptsikevich, a senior market analyst at FXPro, stated, “The recent surge in gold began with the Federal Reserve's potential policy change, tensions in the Middle East, and the desire of some central banks to diversify their foreign exchange reserves away from the U.S. dollar, all of which have provided support.” Recently, the stocks of gold mining companies have also been buoyed. The VanEck Gold Miners ETF, which tracks companies like Newmont, Agnico Eagle Mines, and Barrick Gold, has risen by nearly 25% so far this year. The profits and sales of miners often skyrocket during periods of rising gold prices.

Kuptsikevich wrote, “This month, gold has moved in tandem with stocks, but it's noteworthy that during periods of panic, gold has seen smaller declines and larger gains than stocks. Gold is currently riding the wave of the recovery in global demand for risk assets.” He added that for gold, the range of $2800 to $2900 is “worth mentioning” as a “longer-term target.” Concurrently, on Tuesday, during the U.S. trading session, spot gold touched $2530, continuing to set new records. As gold prices surpass $2500 and continue to reach new highs, the gold market is attracting significant attention. However, some analysts believe that investors might want to shift their focus to silver.

Last week, John Ciampaglia, CEO of Sprott Asset Management, which focuses on precious metals and critical materials investments, noted that Western investors have finally begun to show interest in gold, primarily due to concerns about market turmoil and geopolitical risks. However, gold mining companies have not received the same level of attention, which Ciampaglia attributes to a lack of institutional investment. He also observed a recent pause in China's gold purchasing activities, interpreting it as a strategic move affecting the market.

Despite gold reaching new heights this year, Ciampaglia believes that silver is undervalued. This metal is supported not only by its industrial uses but also as a precious metal. Typically, silver prices follow gold prices upward. Ciampaglia said, “It's incredible that silver is still below $30. Clearly, it's far from its 2010 highs, and we hope to see it return to the $50 level, which we believe it's capable of reaching over time.” Although silver has not kept pace with the record rise in gold prices, market sentiment is gradually changing. The new upward momentum is reducing the gold-silver ratio, which has risen significantly since early July. The current gold-silver ratio stands at 85.5, a substantial drop from last week's high of about 90.

Christopher Lewis, a senior market analyst at FXEmpire, stated that he expects the upward momentum for silver to have only just begun, and any selling pressure should be seen as a buying opportunity. In his report, he said, “Overall, I believe the market will continue to experience significant volatility, but I still think the general trend is biased towards the upside.” Joaquin Monfort, a market analyst at FXStreet, pointed out a short-term resistance level of $29.23 per ounce. However, he added that if the current upward trend continues, he expects the price to rise back above $30 per ounce.

Unlike gold, silver has not maintained a stable upward momentum in the current market environment. Some analysts have pointed out that this is because silver is more sensitive to the global economy. While lower interest rates are beneficial for silver as a monetary metal, the threat of an economic slowdown may keep investors cautious. However, analysts have noted that even during economic downturns, the silver market faces a significant supply-demand imbalance, which is expected to support higher prices. According to the Silver Institute, the market is expected to experience a deficit of 215.3 million ounces this year, the second-largest deficit in over two decades. In this context, Daniel Hynes, a senior commodity strategist at ANZ Bank, stated that silver will catch up with gold.

Hynes said, “Against the backdrop of rising gold prices, strong fundamentals are likely to spark investor interest in silver.” Despite recent difficulties for silver, many analysts still expect solid price increases this year. Last month, commodity analysts at Bank of America predicted that the gold-silver ratio would drop to 75 by the end of this year. The bank forecasts an average silver price of about $28 per ounce for this year.

In the current financial climate, the importance of gold and silver as safe-haven assets is becoming increasingly evident. The surge in gold prices and the potential rise in silver prices offer new investment opportunities for investors. As global economic uncertainty increases, along with rising geopolitical risks, the appeal of gold and silver may be further enhanced. Investors should closely monitor market dynamics and seize investment opportunities to preserve and increase the value of their assets.