Record-Breaking Gold Rally – Could We See More to Come?

Gold has achieved a remarkable milestone, with spot gold soaring to an all-time high of $2,135.39 per ounce on Monday, December 4th. And unlike other gold rallies, gold's performance seems to be more robust, consistently staying above the $2,000/oz mark.

Today, we’ll discuss why this gold rally might be different than ones in the past – and highlight another potentially undervalued asset that might offer even more value in the current market.

Before we delve into that, here’s your weekly dose of gold news, facts, and trivia...

How Silver Shaped the Dawn of Photography
Silver played a crucial role in the development of early photography. Silver nitrate was the key ingredient in photographic plates, making it possible to capture and preserve images long before digital technology.

Bank of America: Gold Could Reach $2,400 per Ounce in 2024
In Bank of America's Metals and Mining Outlook for 2024, analysts believe if the Federal Reserve decides to cut rates earlier than expected, the price of gold could reach $2,400 per ounce by the end of 2024.

How Edible Gold Elevates High-End Cuisine
Gold leaf, made from gold that's been hammered into thin sheets, is actually edible and is used as a decoration on luxurious desserts and in high-end cuisine. It's non-toxic and passes through the digestive system without being absorbed.

Which famous ancient city was said to have streets paved with gold, according to legend? 

A. El Dorado
B. Troy
C. Atlantis
D. Pompeii

Scroll to the bottom of this email for the answer...

What’s Next for Gold After New All-Time Highs? 

Gold prices hit all-time high on Monday, touching $2,135.39 per ounce. As of today, December 8, 2023, gold hovers around $2,030/oz, marking a robust 15% increase from this same time last year.

So what’s behind gold’s rise? A few things, but first, I’d like to discuss a general shift in investor thinking.

A Shift in Investor Sentiment

According to the latest Gallup Poll Social Series, gold has made a significant leap in popularity among American investors. In 2023, gold ascended to second place as the 'best long-term investment' in the United States. This marks a dramatic shift from the previous year: the percentage of Americans considering gold the best long-term investment nearly doubled, increasing from 15% in 2022 to 26% in 2023.

Corroborating this shift, the World Gold Council reports that while Global ETFs experienced net outflows of $920 million last month, and physical holdings declined to 3,236 tons, North American gold ETFs witnessed a net inflow of $659 million in November alone.

So, we’ve seen a general shift in investor mindset. Maybe it’s market volatility, maybe it’s inflation, maybe it’s a bit of both or something else entirely... But many investors are looking to protect what’s theirs and shore up their portfolio with real assets like gold.  

Interest rates also play a critical role in this narrative.

Interest Rates and The Fed

The US Federal Reserve's decision to maintain interest rates for a consecutive meeting has sparked expectations of an approaching end to the rate-tightening cycle. The speculation is that gold's price increase is tied to falling 10-year Treasury yields, as markets anticipate a potential reduction in interest rates next year.  

This scenario typically encourages investors to shift from bonds to assets like gold. But why is that?

Gold is a non-yielding asset, meaning it doesn't pay interest or dividends. When bond yields are high, investors can earn a return from bonds, making them more attractive compared to gold. Conversely, when bond yields are low, the opportunity cost of holding gold decreases.  

Gold becomes more attractive because the potential income from bonds (or other interest-bearing investments) is reduced.

Gold During Political Strife  

Lastly, but certainly not least, the global political landscape also significantly influences gold's appeal. Ongoing conflicts, such as those in the Middle East and along the Ukraine-Russia border, and escalating tensions between the United States and China, can heighten gold's status as a safe haven asset.  

That’s simply because the uncertainty and risk associated with war can drive investors towards gold. In times of conflict, the stability of financial markets can be unpredictable, leading investors to seek out assets that act as a store of value irrespective of any single country's economic or political fluctuations.

Looking ahead to 2024, an election year in the US and 39 other countries7, the potential for market disruption is substantial. During such politically charged times, gold's demand often spikes as investors seek assets likely to maintain their value amidst possible policy shifts.

The Bullish Outlook on Gold

That’s why many are bullish on the shiny yellow metal.  

As we stated earlier, Bank of America predicts gold could reach $2,400 in 2024. Michele Scheider, partner and director at MarketGauge.com, said gold could hit $3,000 in an interview with Yahoo Finance last month. And famous author of the best-selling book Rich Dad Poor Dad, Robert Kiyosaki, predicts the price of gold to reach $5,000 in 2024.

Now obviously no one knows for sure where gold prices are headed, but it’s encouraging to see so many banks, industry leaders, and financial analysts share their bullish outlook on gold.  

But, as attractive as gold looks today, there could be another asset sitting at an even better value staring at us in the face.  

The Undervalued Asset Many Are Forgetting

Recent research by Oxford Economics highlights an important yet often overlooked trend in the silver market. Their study on Fabrication Demand and Drivers for Silver forecasts a notable upsurge in silver demand across various industries over the next decade.  

Key Predictions from the Study:

• Industrial Growth: The global output of industrial silver end-users is expected to rise by 46% in real terms between 2023 and 2033.
• Electrical and Electronics: Silver use in the electrical and electronics applications industry is forecast to grow by 55%.
• Jewelry and Silverware: The output from silver jewelry and silverware fabricators is projected to increase by 34% and 30%, respectively.
• Combined Growth: When industrial, jewelry, and silverware fabricators are considered together, their output is set to rise by 42% in this period – a rate double that of the previous decade.

The Industrial Significance of Silver

It’s important to remember that silver has been used as money for thousands of years. But the truth is that silver's utility extends far beyond its monetary value.  

Silver's exceptional electrical conductivity makes it an ideal material for a wide range of electronic devices. Silver has potent antimicrobial properties, making it valuable in medicine.  

Silver is also the most reflective metal there is, which makes it great for things like mirrors and solar panels. According to a research paper by University of New South Wales, solar manufacturers will likely require over 20% of the current annual silver supply by 2027. 

Record-Breaking Demand vs. Limited Supply

We’re seeing a trend. Silver demand is setting records in a number of different industries. In 2022, the global demand for silver rose by 18% to a record high of 1.24 billion ounces.

Meanwhile, supply is not keeping up. The Silver Institute said 2022's undersupply and a 51.1-million-ounce shortfall in 2021 had wiped out cumulative surpluses from the previous decade, calling the situation “possibly the most significant deficit on record.”

Silver vs. Gold in Bull Markets

While gold garners headlines with new all-time highs, silver remains substantially below its peak.  

Historically, silver has often outpaced gold during periods of rapid market growth. The 1970s serve as a prime example, where silver's return far exceeded that of gold. Specifically, a $100 investment in silver at the beginning of the decade would have surged to over $4,000 by 1980, a return that greatly surpassed gold's 25-fold increase.

Silver's extensive industrial applications help contribute to its robust performance during economic upturns. But it’s also worth noting that silver’s market is also smaller and thus more volatile than gold's. This volatility can lead to larger percentage gains during a bull market. Silver's lower price point also makes it accessible to a broader range of investors, potentially driving higher demand during market uptrends.

Silver’s Current Valuation

Despite these dynamics, silver's market price hovers around $24/oz, suggesting a potential undervaluation. Given the tightening supply and escalating demand, silver’s market correction seems inevitable, making the current price an attractive entry point for investors.

As we approach another potential bull market in precious metals, silver's relative undervaluation and historical performance suggest it may have more room to soar. If you've considered adding to your silver holdings, the current market presents a compelling opportunity.

That concludes this week's GoldSilver Nuggets. Stay tuned for more insights next week.

Best,

Brandon S.  
GoldSilver

Which famous ancient city was said to have streets paved with gold, according to legend?

A. El Dorado
B. Troy
C. Atlantis
D. Pompeii

Answer: El Dorado was a mythical city located in the jungles of South America, rumored to be overflowing with gold and untold riches. The Spanish conquistadors searched for this city in the 16th century, but it was never found. For centuries, the legend of El Dorado has captured the imagination of explorers and treasure hunters.10