Gold and Silver: Insights from TD Securities’ Daniel Ghali

Gold has found itself in a remarkably advantageous position, with potential for gains independent of the U.S. dollar’s performance, while silver is increasingly being recognized as a market opportunity in light of its structural deficit. These insights come from Daniel Ghali, senior commodity strategist at TD Securities, in a recent interview conducted on February 21.

The Anomalous Performance of Gold

According to Ghali, gold’s current rally is somewhat anomalous; it has performed well even amid a strong U.S. dollar and periods of rising interest rates. “One of my core beliefs is that we can learn a lot more from anomalies in markets than we can from what markets are actually supposed to do,” he noted. Historically, gold has thrived under specific economic conditions, mainly during bear markets for the U.S. dollar.

Reflecting on the unusual nature of gold’s price movements, Ghali pointed out instances from history where gold exhibited similar behavior. Notably, he referred to 1933, when the U.S. government revalued gold, and 2009, during an unprecedented round of quantitative easing. “Gold has rallied despite U.S. dollar strength, and periods when U.S. rates were rising as well,” he stated, underscoring that such instances in the past have been rare.

A New Role for Gold

Ghali suggests that gold may be taking on a new role in the current economic landscape. The strong U.S. dollar could be driving Asian investors to acquire gold as a hedge against potential currency depreciation. “This is a trend that we’ve seen develop over the last two years and has come back to the fore as of January of this year,” he commented.

Additionally, he highlighted that tariffs and their ensuing impacts on commodities markets could lead to distortions affecting gold prices. “It’s an epic distortion in commodities markets that is currently hiding behind the rising gold prices,” he explained. The significant returns from moving physical gold from London to the U.S. have been unusually large; however, those conditions are showing signs of normalizing, particularly with gold.

Short-term Prospects for Gold

Despite the positive setup for gold, Ghali characterized the current surge as a short-term phenomenon. “I think the setup in gold we can summarize as ‘Heads I win, tails you lose,’” he said. This reflects the dual nature of gold investment, whereby Asian investors buy gold as a hedge during strong dollar conditions, while Western macro funds typically purchase gold amid declining dollar values.

Ghali cautioned that such an extraordinary setup is quite rare and unlikely to last long. However, as long as it does, it presents a strong context for gold prices to remain robust.

The Rising Star: Silver

Turning to silver, Ghali shared that it is no longer merely the poor cousin to gold. “Silver has a really unique story,” he affirmed, noting that this is the fifth consecutive year of a structural deficit for silver. This situation is historically unprecedented, driven by a significant increase in demand attributed to the global boom in solar energy capacity.

However, Ghali pointed out a critical transition occurring within the silver market. As the world shifts away from high demand to a liquidity crisis, the physical movement of silver has grown increasingly dramatic. The continuous extraction of metal from London to other markets has imposed severe strains on the largest bullion vaulting system, impacting day-to-day trading activities in physical markets.

“London is trading extremely tight,” he remarked. “We think it can get even tighter, and ultimately flat prices in silver need to rise in order to incentivize metal to come back into London from unconventional sources.” This tightening of market conditions positions silver as not just an alternative to gold but as an investment opportunity in its own right.

Current Market Conditions

As for the present state of the gold market, it has recently dipped from its recent highs but remains above the $2,900 per ounce mark. Spot gold last traded at $2,914.33 per ounce, reflecting a loss of 1.28% on the day. Despite this minor setback, the overarching trends outlined by Ghali indicate potential momentum for both gold and silver in the coming weeks and months.

Conclusion

Overall, Ghali’s insights suggest both gold and silver are positioned uniquely within today’s complex economic landscape. Gold’s current behavior defies historical norms, indicating a period of strong performance driven by dynamic market forces. At the same time, silver’s ongoing structural deficit, compounded by liquidity challenges, makes it a compelling prospect for investors looking beyond traditional safe havens.