The last 12 months have been significant for the gold and silver markets, and we think there is further to go for both of these monetary metals.
In April 2024, the inflation-adjusted gold price in dollars touched a new high, exceeding the price set in 1980, and the price has moved up since then. The price of dollar gold in the year through November was up 29%, the most in more than a decade, making it one of the best-performing asset classes. This has been driven by a range of factors, including falling interest rate expectations, central bank demand and concern about macro and geopolitical risk.
Outside of the central banks buying, demand in the gold market has been driven mostly by sophisticated investors such as hedge funds and computer-traded algorithm traders, which have chased and pushed gold futures higher.
Bull market needs to broaden
We’re in a bull market for gold and yet the broader market isn’t participating, and that’s why we believe there is further to run. Gold miners have increased production and profit margins, but their shares haven’t kept pace with the gold price.
Similarly, the price of silver hasn’t yet broken out, despite the interesting dynamics for the white metal: increasing demand from industry users such as battery makers and a supply shortage. Silver priced in dollars rose a healthy 22% in the year through November.
We believe that the next phase of the market for monetary metals will take in silver and the miners and may be driven by a broadening of buyers to include long-only investors, whose attentions until now have been overly fixed on the shares of Nvidia and the other US tech giants known as the Magnificent Seven, as well as on cryptocurrencies. This has prevented much-needed momentum for gold and silver.
Trump matters
Looking forward, the impact of the policies of the Trump administration on global trade will be important for markets. Expectations for economic expansion, yields and inflation suggests a positive but possibly more modest growth for gold in 2025. Upside can come from lower-than-expected interest rates, rising volatility or continued above-average central bank gold demand. Higher-than-expected interest rates would be a headwind for gold.
However, we believe that the risk emanating from the quantum of debt that has flowed into the global financial system to finance surging government spending is underappreciated and not adequately priced or discussed in markets. The US leads the way, with a fiscal debt pile of around $1.9 trillion. At what point does the financing of all this debt undermine the risk-free status of US Treasuries and the US dollar?
When the pavement ends
We sometimes use an analogy when talking to investors: There’s a big sport-utility vehicle towing a luxurious travel-trailer along a long, smooth, straight road. Central banks in the form of central bankers are driving the SUV, and they are carrying with them a safebox full of gold – their preferred risk-free asset. Back in the trailer, the financial system in the form of ordinary investors are relaxing, and they are carrying a folder stuffed with US Treasury bonds – their preferred risk-free asset.
The central bankers are chatting away amicably up front, and the investors are stretched out comfortably in back. Suddenly, the pavement ends, and the road turns to dirt, becoming rutted and twisting. The central bankers in the SUV activate the four-wheel drive system and check that their box of gold is secure. The trailer behind swerves and shakes violently, the investors get thrown from their seats and the Treasury notes and bonds fly through the air - some notes get sucked out the window. The frantic investors phone up to the central bankers and ask, `What’s happening?’ The central bankers pat their safebox full of gold and say, `Don’t worry everything is under control.’
Gold and silver have historically been considered as safe-haven assets. Gold plays an important role as a strategic asset for central banks to manage risks and diversify reserves, and central banks have increased their purchases of gold in recent years.
Portfolio diversification
Gold and silver can’t be printed in unlimited quantities in the way governments can print their currencies. We believe that many investors are under allocated to gold and silver.
We think the outlook for monetary metals remains positive, and we’re concerned about potential volatility related to the market’s extreme positioning in other asset classes, the huge spending sprees by governments and the complicated geopolitical backdrop.
When will the pavement end? We don’t know, and we think it’s unwise to try to predict market timing. If and when it does, however, we would want to be riding with the central bankers and their gold rather than with the investors and their Treasuries.
Please note: Capital at risk.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.