Gold Trending Up & Silver Emerging
Colin Hamilton of BMO Capital Markets expects gold to be supported for the rest of 2020, and sees an emerging opportunity in silver in his recent ink, ‘Gold has seen trending up, and silver opportunity emerging!’
This year has seen the world change in unprecedented ways, but for BMO Capital Markets’ Colin Hamilton, 2020 is set to be a profitable year for the gold market. “Most of the elements that have helped gold price gains in the past are in place-particularly very loose monetary policy and low yields,” Hamilton said at the
World Gold Forum, an online event.
Gold has been holding above the US$1,700 per ounce level since earlier this month, with the metal gaining more than 11 percent since the start of the year. For the expert, one of the key trends this year will be gold demand flowing predominantly from macro asset allocation, with the pace of this allocation dictating price performance.
“This makes gold more pro-cyclical than seen previously,” he said, adding that wider assets under management are an important metric to keep in mind.
At the point of Gold demand easing, he said, when looking at demand, BMO sees three types of gold consumers:
1: central banks,
2: particularly in emerging markets &
3: macro asset allocators, which are attracted to gold for its liquidity; and micro asset allocators, which see gold as a store of value.
“This year we will see more flow into the exchange-traded funds (ETFs) and central banks,” he said, adding that the pace of ETF flows is important for gold price moves both to the upside and downside. Hamilton expects gold to have good support through Q2 and the latter part of the year. He warned that the market might see corrections, but it’s still a steady and upward trend for the precious metal.
Speaking about government policy and its impact on gold, Hamilton said that falling yields, along with highly accommodative policies, such as those implemented recently by the US Federal Reserve, keep offering support to the yellow metal. “In the next couple of years I don’t see a situation where interest rates will rise aggressively and yields are recovering, and with that, it still makes gold a good bet from an asset allocation perspective,” he said.
In the context of Gold and the US dollar, he said, Typically a strong US dollar would make buying gold more expensive for investors using other currencies, impacting demand for the yellow metal, and in return prices. “However, the relationship often disconnects, where gold prices have stayed constant or even increased during periods of US dollar strengthening,” Hamilton explained. “We often see that happen when gold’s safe haven is key it’s when the world is concerned, as it is at the current time.”
He added that at the moment, the US dollar has a limited impact from a macro asset allocation perspective, but that is not to say that will always be the case. “As we get the recovery going through, I think we will see more influence of the dollar, but for now it’s about gold’s safe-haven role,” he said.
Upon asking a question: What about silver? He said, Even though most attention is always on gold, Hamilton does see an opportunity emerging in silver. “The silver demand outlook is likely to experience a bit of a shakeup as new technologies come forth,” he said. “We increasingly believe the use of 5G and photovoltaic will position silver as more of an infrastructure commodity.”
As the world starts to recover, keeping an eye on the fiscal stimulus moving forward will be very important, Hamilton added, with China leading the way with 5G and solar. Despite the fact that silver ETF flows remain sporadic, asset allocation can be more meaningful in the silver market, with potential dramatic shifts in silver price. In terms of supply, the analyst expects to see a significant drop in output in 2020.
“For us, silver cannot decouple from gold, but we do see it outperforming, certainly during that recovery period in the second half of this year,” Hamilton added.