Outlook for gold and silver price

Before the Iran war, precious metals prices had risen at record pace to new highs. At this year’s mining conference in Cape Town, just before war broke out in the Middle East, experts told us who’s been buying gold and silver, what high metal prices mean for gold miners, and what the outlook is for the gold price.

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John Meyer, partner and mining analyst, SP Angel: Well, I think it all started with central banks. China was building its gold holdings anyway, and we saw Poland coming in as well. Probably a few other banks diversifying out of the US dollar. Definitely the Chinese selling US treasuries. But it’s partially because US interest rates were coming down, partially because Donald Trump had perhaps made the relationship between China and America a little more fractious.

So there is what they call the debasement trade, with the general move away from dollar instruments and into other things. Remember, the US stock market has been flying high, especially with the tech stocks and with artificial intelligence (AI), and the rest of the world increasingly looks cheaper value.

Now, on top of all of that, we have the crypto guys, Tether and others, putting more and more of their funding into hard assets. So, Tether have been buying one to two tons of gold a week. That’s like a whole new central bank coming in on the scene.

Harry Anagnostaras-Adams, executive chair, KEFI Gold and Copper (LSE:KEFI): BRICS economies are trying to break away from being so tied to the US dollar. Why has India and China been the largest hoarders of gold? It’s because China and India, their populations, fundamentally distrust their currency. Always have. They may not admit that in policy statements, but that’s what has occurred. That phenomenon has arrived to the West now. I think that this isn’t some sort of speculative bubble thing. Fort Knox is being built around the world now rather than having Fort Knox in the Bank of England. There are now a number of them being built. So, it’s deep seated.

Louis Castro, executive chair, Orosur Mining Inc (LSE:OMI): China has a lot of influence right now and from what one is hearing, China is now approaching people who it lends money to say, look, by the way, chaps, we think perhaps you shouldn’t be supporting the dollar quite as much buying these bonds. So, that’s one of the rumours that’s out there - it’s not just China buying. Central banks are buying gold, undoubtedly. Bitcoin companies are buying gold. Interesting diversification. One of the largest ones in the world is buying gold, so the demand is there and then you have all the geopolitical turbulence that we’ve got right now.

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Chris Eger, CEO, Resolute Mining Ltd (LSE:RSG): The higher gold price creates the opportunity for opening and longer mine lives in many different deposits that we have, which is pretty obvious. It also means some of the assets that we have are probably worth a lot more than what was put on paper years ago when the DFS’s [Definitive Feasibility Study] were done at a $2,000 gold price. So, that creates a big positive in that the asset values are going up tremendously.

However, when gold is a higher price, people are looking for gold and, for example, finding rigs to drill is becoming very difficult because there’s only so many rigs. Now, over time, more rigs will get constructed and there’ll be more operators. So, there’ll be a kind of a supply catch up. But right now we’re seeing a squeeze on rigs. Then over time, as we’ve seen in the past, they’ll tend to be cost inflations if the gold price stays at $5,000 for the foreseeable future, I would expect salaries to go up and other inputs to go up, as it has in the past.

Louis Castro: You’ve got Mr Trump, who is about to incur quite a lot of debt in the States, and the thought of what might happen one day should be payable. I mean, I would never bet against the USA, but still the debt that he’s going to bring on is going to be a large number, and that’ll need funding. So, that in itself is causing a lot of turbulence. I don’t know whether it’s going to go hold up. I think it’s gone up a bit too quickly, there’s quite a lot of froth in there.

But if I was a betting man, I think it may come off a bit, but it’s not going to go down anywhere where it was before. So, we’ve got projects now which may be small, actually the one million ounce resource doesn’t need to be one million ounces anymore. It literally could be half that and still be highly profitable in these markets. So, we’ll see where it goes.

John Meyer: As in any bull market, especially a bull market that comes on us so fast as we’ve seen, there’s always going to be a degree of volatility. There’s an overshoot. I suspect we don’t really know until we look back on it.

Chris Eger: So, look, where the gold price has come from is not a huge surprise in the sense that if you go back, from 2011, 2021, the gold price was pretty flat. Obviously there was some appreciation, but we’ve had a long time where there’s not been a gold run.

It’s quite obvious with the US political situation that there’s a need to flight to a proper currency and gold is that safe haven. So, I think the culmination of underinvestments in the past and the current political environment, we’re in a new norm. I can’t tell you if it’s at $4,000, $5,000, but I think we’re in a level that’ll probably stay for the foreseeable future.

So, I don’t think it’ll drop back down to $3,000. I think $4,000-plus is where we’ll be for some time to come because I do not see the geopolitical environment settling anytime soon. The mass majority of buyers of gold today are the central banks and they will keep buying gold in order to keep the price at the current levels.

Segun Lawson, CEO, Thor Explorations Ltd Ordinary Shares (LSE:THX): Like you say, there was a sell-off recently. But I think the levels we’re at now, $5,000 gold, we as a company certainly didn’t see that. We didn’t predict that. We’ve done all our budgeting now on $3,500 gold. The ongoing, should I say, debasing of the dollar will continue to impact the gold price positively. I don’t know where to, but I think and I hope these numbers around about $5,000 per ounce are realistic in terms of the long-term forecasting.

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Bert Munro, CEO, Cora Gold Ltd Ordinary Shares (LSE:CORA): Well, I mean, look, everyone’s an expert on the gold price. I think there’s obviously a lot of things driving it. I think fundamentally people are buying it.

Look, I mean, I’m not a chartist and I never try and guess the gold price, I always say our focus is on being the lowest-cost producer you can be and that’s all you can deliver as a mining company. But the chartists I do speak to seem to say $8,000 is the number that they’re looking for. I think they’re obviously a lot of banks which have obviously got price forecasts. A lot of them seem to be targeting $6,000, $6,000-plus, so I think there’s a hell of a lot of reasons why it should be continuing to go up over the longer term.

Werner Klingenberg, CEO, Goldplat (LSE:GDP): Everybody is talking about the high gold price. I think something that people need to maybe go and have a look at is to say, what has the real return on gold been over last 25 years?

They might find that the last six months might look quite impressive, but actually we’re sitting with a gold price that’s potentially not that much higher, or overvalued, some people might even think. Because if you compare to what it was in 2000 and with cost creep and inflation, it probably is not that high and there is probably still some room for it to go up in the next couple of months.

In the end, I believe, obviously as any bull run, there will be a high price and it probably will stabilise, but potentially it might be somewhere a lot higher than what we’ve seen in the recent past.

Harry Anagnostaras-Adams: There’s only one and a bit per cent of capital tied up in gold globally. If one doubles it to 2%, it’s 100% more demand than there has been. I’m not suggesting that gold takes over the role of currencies globally, but the allocation of some capital for anyone trying to preserve wealth to a bit more gold is paramount to anyone who’s insecure. The world has woken up to a level of insecurity that it hasn’t felt for a long time.

Chris Turner, EVP, Corporate Development, Americas Gold And Silver Corp (AMEX:USAS): Silver is obviously associated with the same precious metals bucket as gold and the two are very much linked. But silver has one very unique quality to it and that is the fact that it is actually consumed. Silver serves a dual purpose as a precious metal as well as a consumed industrial commodity.

So, the biggest source of consumption for silver is solar panels, they are basically the largest consumer on an annual basis. We also have it going to battery technology, electronics, and then we have other sources of demand such as jewellery, investment demand, so all sorts of different demand that actually consume silver rather than it just sitting in a vault.

Now, every year we produce about 800 million ounces of silver. We have another about 200 million ounces that are recycled out of various other use cases previously. But demand for silver for the last five years has been in excess of 1.2 billion ounces. So, we’ve been running a deficit, actually, for about six years now. We’ve been running a very large deficit for physical silver demand.

Now, as the world shifts more and more towards renewable energy, especially when you see things like the price per installed watt of solar panels getting as low as $5 per watt, you’re seeing a lot of the developing world building gargantuan solar farms. That demand for silver is only increasing. So, you’ve got a huge source of industrial demand.

The supply side of it is very interesting. There’s only about 13 primary silver producers in the world that are...listed, and you’re talking to one of them right now. Most of silver is actually a byproduct of other metals. So, it comes in zinc and lead mines or copper mines. In fact, over 70% of silver comes as a byproduct to other metals.  

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John Meyer: So, I think silver is naturally going to be a more volatile metal. It rose faster and I think it went further. It’s a smaller market just in value terms, but also I think there’s more recycling coming in, a lot of people are taking in their silver for melting down at these prices. And, yes, the physical demand is there, but I don’t think that’s going to soak up the entire market, and definitely that physical demand is growing. It’s not just solar panels, it’s electric vehicles, it’s other connections.

I believe it’s very hard to find a replacement for silver in a lot of this stuff. So, the more electric vehicles, the more solar panels we buy, the more demand there will be.  

Chris Turner: You’ve got two different markets that dominate silver pricing. You’ve got the COMEX, which is out of New York, which really is a paper market. Every one ounce that’s traded there has about 360 paper ounces backing it up. What does that mean? Most of it is derivatives. If you buy an ounce of silver, it is very, very hard for you to get physical delivery.

Now, over in China, what we’ve seen is a massive run-up in the price of silver on a market where you can settle for physical delivery. So, that means if you buy an ounce of silver in Shanghai, you can collect physical delivery.

So, as the world has had this huge surge in demand, and now you’ve got the investment case layering on top of it, we’ve got all these debasement trades, people are worried about the strength of numerous fiat currencies, you’ve had this huge need for people to collect physical silver, and remember, physical silver is consumed in all the demand cases that we talked about earlier.

So, China has really been leading, or Eastern markets, have really been leading the price upwards because it’s real physical demand.

Over in the United States, the paper market has been very volatile, chopping up and down, but it’s basically been dragged up by that. Over the near term, it’s hard to see a scenario where that physical demand goes away and there certainly is no solution for the supply problem. 

So, an interesting silver market ahead of us. It will always be volatile, silver is a volatile metal, but up and to the right is looking very likely.