Silver Storm Mining Ltd. (TSXV:SVRS)
Building the Next Latin American Silver Producer.
According to UBS’s forecast, under the expectation that the Federal Reserve will initiate an interest rate reduction cycle, the prices of precious metals such as gold and silver will continue to soar in 2024. It also predicts that the price of gold will rise to $2,200 per ounce by the end of this year. Although the timing and extent of the interest rate cut are currently uncertain, the investment bank maintains its expectation that the Federal Reserve will loosen its monetary policy.
The price of gold was $2,038 per ounce on Monday. The price of gold surged from around $1,300 to about $1,900 between 2019 and 2021.
The price of silver was $22.68 per ounce on Monday. After the Great Recession, the price of silver soared and reached a high of $45 in 2012. However, after the outbreak of the pandemic, the price of silver actually saw a slight decline.
Currently, US interest rates are at a 23-year high, but the upcoming interest rate cuts are expected to bring significant changes to the prices of gold and silver.
Gold prices tend to have an inverse relationship with interest rates; when interest rates fall, gold becomes more appealing compared to other investment products such as bonds. The level of real interest rates affects the holding cost of gold, especially when real interest rates are negative, people are more inclined to hold gold. The overall level of global interest rates also affects the trend of the US dollar index, thereby influencing the price of gold. High interest rates will strengthen the US dollar, increase demand for the US dollar, and thus suppress the demand for precious metals.
Therefore, once the Fed starts cutting interest rates, investors will flock to precious metals, especially the gold market, boosting the demand for gold. UBS’s precious metals strategist Joni Teves stated that they expect the Fed’s loose policy to drive the weakening of the US dollar and the rise in gold prices. Fed Chairman Powell predicts that the federal interest rate will decrease later this year.
Compared to gold, silver has weaker hedging against geopolitical risks and safe-haven properties, which may also be the reason why this precious metal has underperformed gold in the past five years. But if the interest rate reduction cycle begins, the price of silver is expected to have a very astonishing increase, even surpassing that of gold. As for the reasons, Teves believes that there is a demand for a catch-up phase for silver.
In terms of investment returns, US stocks still outperform gold. The S&P 500 index has risen by 82% since 2019, while the price of gold has risen by 54% over the same period.
