On Jan. 26, Wall Street woke up to gold and silver prices reaching another record high. The yellow metal topped $5,000 per ounce for the first time, while silver continued firming above $100. It has been an exceptional journey for precious metals, especially for investors who bought them for a couple of raspberries and a vanilla shake back in the day. What is this unprecedented rally saying?
Gold and Silver to the Moon
During the pandemic-era meme-mania, armchair traders insisted that AMC, dogecoin, and GameStop would go to the moon. Years later, these investments are in the doldrums. Instead, the good old-fashioned hard assets are all the rage, leaving cryptocurrencies and stocks eating their mining dust.
Over the last 12 months, gold and silver have climbed 86% and 280%, respectively. Nobody anticipated this meteoric ascent; not even the goldbugs saw this coming. But what has been the driving factor behind this never-before-seen rise?
For gold, it is a mix of investor demand, a weaker US dollar, central bank buying, and traders chasing the rally. The greenback has slumped over the past year, falling around 8%, making dollar-denominated commodities cheaper and more appealing to foreign investors. Central banks continue to buy the metal, with Goldman Sachs estimating purchases averaging 60 tons per month, well above the pre-2022 average of 17 tons.
For silver, it is primarily the global supply deficit. The federal government added the white metal to its list of critical minerals this past fall. Big Tech (at home and abroad) needs industrial metals for the buildout of artificial intelligence (AI), data centers, and robotics. The other factor for silver is China. The Chinese Communist Party imposed export controls on silver, and companies now require government licenses to export it.
In Shanghai, silver premiums are $16. In Dubai, they touched $40. Why? The people want the physical stuff, not the metals on paper. On the COMEX division of the New York Mercantile Exchange, the paper-to-physical ratio in silver is about 350:1 – for every ounce of deliverable silver, there are 350 ounces of paper claims.
Toss in geopolitical tensions, fiscal fears, economic uncertainty, and the rally extending beyond traditional channels, and the manic metals trade still has plenty of room to grow.
Death of the Dollar
Traversing through X will deliver a plethora of theories that the latest trip to the moon aboard the Goldfinger Express is signaling the death of the US dollar. Put simply, the world wants real money, not the phony paper kind.
On the surface, this appears to be a reasonable assumption inside the social media ecosystem. Indeed, the dedollarization has been much discussed over the past decade. But it has also been said that dethroning King Dollar is a multi-decade coup rather than an overnight stunt.
