Transcript

Hello and welcome to a new podcast from BNP Paribas Wealth Management. I am Edmund Shing, Chief Investment Officer. The subject of this week's podcast is Precious Metals. Have we reached the end of the road after a very strong run-up, particularly in gold? Just to remind our audience: at the start of 2024, the price of gold was around $2,000 an ounce. Now, midway through 2025, we are at $3,300 an ounce. That is an increase of well over 65% in one and a half years.

This year alone, gold is up some 27% since the beginning of the year in dollar terms. However, if we look across precious metals as a whole, gold is no longer the leader as it was last year, but is now rather becoming a bit of a laggard. We are seeing a catch-up by the smaller markets in precious metals, notably in silver and in platinum. Over the year to date, in dollar terms, silver is up 31%, so slightly ahead of gold. But the leader of the pack is quite clearly platinum. After 15 years of doing pretty much nothing, platinum today is up 53% in the year to date. So at the end of last year, platinum sat at around $900 an ounce, at the low. Today, it's close to $1,400 an ounce after a very strong run of performance over the last couple of months.

Now, if we look at gold versus silver, one way to look at the two in relative terms is clearly to look at the gold silver price ratio. This has touched over 100 times for gold versus silver in recent months. Today it sits at 88 times. But let's not forget that even though we've seen some outperformance of silver versus gold, there could be much more in store. The long-term average of the gold silver ratio in recent times has been around 60. So even at 88 times, it suggests we could have performance of as much as 50% more for silver versus gold if we were to return to this long-term average of 60 from the current level of 88. Now, even the silver has already touched close to $38 an ounce, and our price target is at $40 an ounce, you might say this sounds a little farfetched. However, we believe that gold can easily maintain $3,300 an ounce, if not, go further. And that would suggest that silver has potential to go way beyond $40 an ounce. And just to remind our audience: the historic high for silver has been $50 an ounce touched twice in the past, both in 1980 and in 2011. So at $37 to $38 an ounce, there still remains significant upside for silver versus long-term historical highs at a time when gold has already been breaking new historical highs month after month.

Now, while we have a short-term trading target for gold at around $3,300 an ounce, there are far more bullish forecasts out there on the street. If we listen to a number of US investment banks, such as Goldman Sachs or J.P. Morgan, by the middle of next year, they are pitching gold to reach $4,000 an ounce, which would give you over 20% upside versus the current level. And in that context, I would argue that in a more generalised precious metals bull market with upside for gold, we should see even more upside for both silver and platinum.

Now of course, these are not exactly the same. They are much smaller markets than gold on the one hand. And secondly, they're not pure monetary metals. They're not a pure store of value as gold is, they have not only a monetary metal value, but also an industrial demand aspect, which is very important. In both for silver and for platinum, we are at least in the third year of consistent supply, demand deficit. That is a place where industrial and jewellery demand continues to outstrip new mining supply of both silver and platinum. And we reached a point where above-ground stocks have been run down. And this is why we are starting to see the industrial demand growth for silver from solar panels and electronics, principally, and for platinum, principally from the automotive sector.

In both cases, the surprising strength of demand to which we can add surprising extra demand growth coming today from jewellery demand, principally in Asia, taking all of these demand growth factors together and the lack of growth of supply in mining, supply of silver and platinum. Taking all these factors together suggests a pretty positive outlook, not only, as I said, for gold in the longer term, but also more importantly, for silver and platinum. What could be the drivers from here for a continued precious metals bull market, on top of what has already been an extraordinarily strong market? Well, clearly continued weakness in the dollar.

At the moment, we are seeing a small counter trend rally in the dollar after what has been six months of dollar weakness. Again in the year to date, the euro against the dollar has gone up 12%. But you can see that as 12% of weakness for the dollar versus the euro. The dollar has been similarly, if less impressively, weak against other currencies such as the British pound, the Japanese yen or the Chinese renminbi over the year to date. And we are expecting further structural weakness in the dollar over the next 1 to 2 years against this basket of major currencies. That should be a positive, key positive driver for precious metals, gold principally, but equally well for, I believe, even perhaps more so for silver and platinum going forwards.

The second element I think, which remains important is declining yields. Interest rates continue to decline. We see the ECB in Europe and the Bank of England in the UK cutting rates. We expect the US Federal Reserve also to be cutting rates later this year and continuing next year. So lower cash interest rate levels, should other things be equal, also be very supportive for precious metals prices. So we're expecting lower yields across the board to also represent a support for precious metals prices.

So overall are we at the end of the road for precious metals? I think the answer is no. Should we retain exposure principally to gold as a diversifying asset in a diversified portfolio? The answer is absolutely still yes. What drivers and factors could help a further gold bull market? Well, clearly a weaker dollar and lower interest rates are two such factors, combined with continued central bank buying around the world, which is something we've continued to see, at least according to the official numbers over the first quarter of this year.

Do we expect continued outperformance, finally, of smaller markets such as silver and platinum, which are both monetary metals and industrial metals? I think the answer is yes. If we look at the performance of copper, which in at least the US copper has been very strong over the year to date, given the demand growth that we expect for these industrial metals linked to the electrification of the economy, for instance, globally, I would say that absolutely, we should expect further strong performance over the next 6 to 12 months, at least from both silver and platinum alongside gold. So absolutely, the precious metals bull market continues for now. We have a good outlook over the medium term. And so this is absolutely not the time to be selling positions. But if anything, one should add to positions in precious metals on any weakness in the short term.

A final point for those of you who can stomach a lot of risk, do not just think about the physical metals, but also think about the mining companies. Again, we are seeing gold miners, such as those represented by the GDX ETF in the US, are at record profit margins for the first and second quarters of this year. We expect these profit margins to continue to progress as prices of the precious metals continue to rise because costs, although they're rising, are not rising anywhere near as quickly as the output price of these precious metals. So the miners of these precious metals, profit margins and therefore returns on equity should continue to increase, cash flow should increase. And what we note with these mining companies is that rather than build new mines, they're consolidating the sector. Bigger miners are buying up smaller producers in the sector, so that consolidation of mining output of precious metals should continue to support profit margins and therefore share prices across the sector. So although the GDX as an example, the gold mining sector is over 50% year to date, silver miners up a similar amount, we would see further upside for the sector over the medium term going forwards, in line with our positive view on the precious metals themselves.

Thank you very much for listening to this podcast from BNP Paribas Wealth Management. Please do like, share and subscribe to this series of podcasts. And do look at our website by searching the web for BNP Paribas Wealth Insights, for more information about our investment strategy and our investment themes. Thank you. And until the next podcast, goodbye.