Rising debt and policy uncertainty strengthen gold’s edge over silver
NEW YORK (February 26) Gold’s rally may have cooled from its frenetic start to the year, but the structural forces underpinning the precious metals market remain firmly in place — and increasingly favor the yellow metal over silver, according to one market analyst.
In an interview with Kitco News, Nitesh Shah, head of commodities and macroeconomic research at WisdomTree, said that while both metals face a volatile macro backdrop, gold appears better positioned than silver as a monetary metal in the months ahead.
After January’s sharp surge and sudden pullback, gold has entered a period of relative calm, with prices consolidating above $5,100. Shah described last month’s momentum as unusually speculative. “We saw more volatility in gold than we saw in Bitcoin, which is just not normal,” he said.
While it may take more time to work the froth out of the market, Shah said that gold is benefiting from an “expanded scale” of buyers, including Chinese insurance companies and pension funds, central banks, and even tokenized and digital gold demand.
At the same time, fears of fiscal dominance — the idea that central banks will ultimately be forced to accommodate unsustainable government borrowing — continue to provide structural support for the metal.
Speculative positioning in the options market also reflects persistent bullish sentiment. Shah noted that calls at “around $10,000, $15,000” have attracted “some decent volume in open interest,” describing them as investors throwing in “lottery bets” amid a sense that “anything can happen now.”
However, while gold’s consolidation appears constructive, Shah warned that silver’s run may be more vulnerable.
“Silver’s a bit trickier because it’s had such a strong run already,” he said, adding that when looking at the gold-silver ratio, it is “way below historic average,” indicating that “silver is relatively expensive compared to gold.”
Unlike gold, whose demand is overwhelmingly monetary and investment-driven, silver must contend with price sensitivity in the real economy.
“Given that silver is so much more industrial, my worry is that the industrial demand could get choked off from these price rallies,” Shah said.
As a result, Shah said he would not be surprised to see silver weaken relative to gold through the rest of the year. He added that he expects the gold-silver ratio to move back to a range between 60 and 70 points.
There is one wildcard, however: Retail investors may continue to favor silver simply because it appears cheaper in absolute terms. Shah said that demand for silver coins and bars could remain firm even if fundamentals favor gold.
As for what could ignite new momentum in gold and push it back to last month’s record highs, Shah said that investors still need to pay attention to global monetary policy, which is being led by the Federal Reserve.
The U.S. central bank continues to maintain a relatively neutral monetary policy, as it appears to be in no hurry to cut interest rates before the summer. However, Shah said that monetary policy cannot be understood in isolation from fiscal realities.
“Debts are rising everywhere. If you can’t rein in debts… then central banks in some shape or form will have to react,” Shah said.
He added that when debt payments become unsustainable and bond markets become disorganized, central banks will have to act boldly, either by cutting rates or easing in another form. In the current environment, he suggested that balance sheet expansion could be the more politically palatable route.
Crucially, this is not just a U.S. issue. Japan under Prime Minister Sanae Takaichi is looking to stimulate its economy with significant fiscal measures. Meanwhile, European countries continue to increase their deficit spending programs to rebuild the region’s infrastructure and strengthen member nations’ militaries.
The expansion of global balance sheets will continue to support gold prices, Shah said. “Gold is the only one that has the fixed supply aspect.”
With so much economic uncertainty hanging over the global economy, Shah said that allocations in both gold and silver remain extremely low and have room for significant growth despite elevated prices.
Shah said portfolio positioning could become a powerful structural driver for precious metals. While many institutional investors hold minimal exposure to the metal, even modest allocation shifts could have an outsized impact.
“Our quantitative analysis on gold markets, if you're looking for optimal holdings, talks about somewhere close to 15%, 20% of a portfolio in gold,” he said, adding that “not many people have anywhere close to that. But a doubling from 1% to 2%… has a material impact in a market that is small relative to global bond and equity markets.”
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