In the second part of his extensive interview, Ed Moy, former director of the US Mint and currently the chief strategist for Valaurum, the US fractional gold retailer shares his outlook for gold, silver and precious metals amid the global economic uncertainty posed by the pandemic.
Gold has been one of the best performers in any asset class last year, but in growth percentage terms, silver outshone gold. Looking, ahead, Moy told Biman Mukherji of indoasiancommodities.com that silver is still the metal best positioned in 2021.
Q: You have talked about gold moving in a certain price cycle, especially when there is a crisis like the current one posed by the pandemic. At what point are we currently in terms of this gold price cycle?
I think it will be a few years before we shake off all the effects of this covid pandemic. That does not even include the global risks of increasing tensions between India and China. And the growth of Iran and Its aggressiveness in the Middle East and what that could do to oil prices. So while the focus is on the pandemic right now, there are a lot of other global risk factors that are really important but are being overshadowed by covid.
Q: Interesting that you talked about oil prices, which seem to be rising again. How much of that is going to be a factor in gold prices going forward?
As you know there is a relationship between oil prices and gold prices. I believe rising oil prices will have an impact on gold prices. I do think that oil will rise. The first thing President Biden did was to rescind Trump’s executive order to build the Keystone pipeline.
The Keystone pipeline was a key component in making sure that the United States would be independent of the influences of the Middle East in the world as far as supply for oil. But now without the pipeline we are more dependent, which means that our economy is much more sensitive to the Middle Eastern oil producers. As the economy begins to recover, I think we will see increasing oil prices.
Q: Last year we saw a remarkable increase in silver prices and it outperformed gold in sheer percentage terms. Going forward, there are experts saying that it may not be silver or gold but platinum could emerge as the leader of the pack of precious metals. So which one would you pick as your favourite investment bet?
Well when I was the United States Mint Director, the United States Mint made both gold, silver and platinum bullion coins. And so asking me to pick which one is the favourite out of the three is like asking a father to pick his favourite child. For the investors that are listening on your call… I think there is some room in silver.
And here’s why I think so. Silver is generally considered as the poor man’s gold. So the same drivers that drive gold prices up also drive silver prices up. And one of the reasons why silver prices haven’t caught up — hit new records like gold has — is because a lot of the silver has industrial use.
And with the economy not being so good globally, the industrial demand for silver is down, which means as investors invest in this–there is plenty of silver out there because industry isn’t demanding this–and there is more than enough silver to meet the demand from silver investors.
Once the economy starts recovering, industrial demand for silver will go up and that will put a squeeze on supply and I believe that you are going to see very aggressive increases in silver prices.
The other way to look at this is with silver prices … when you look at the historical ratio between gold and silver …it usually takes about 60 ounces of silver to buy one ounce of gold and right now that ratio means that either silver is way underpriced or gold is way overpriced. I think gold is where it should be, which means silver is underpriced, which means that it has the potential to have good price appreciation in 2021.
Q: What is your outlook on the dollar and how will that impact the precious metals complex?
As we saw at the beginning of the rise in gold prices in the last couple of months, dollar had hit new lows compared to other currencies. But now the dollar is strengthening again and so you see a little bit of contraction in gold prices.
In the future with increased fiscal stimulus coming from the Biden administration, you are going to see more downward pressure on the dollar as the Federal Reserve continues with its very easy monetary policy.
The only reason why we have seen some recovery lately in the dollar id because dollar is doing better than currency of these other countries. All the economies are not doing well and the US is doing relatively better.
Objectively, the dollar is still way below its normal strength level. I don’t think it is going to recover in the long run until the economic uncertainty disappears and inflation doesn’t show up. Those are the two big factors that will raise the value of the dollar.
Q: What is your outlook on gold? Will people look to invest more in gold as a hedge against inflation?
I do believe in that thesis. I do believe that people…a great number of financial investors look at gold as the insurance policy against inflation. And until the risk of inflation disappears, there will always be interest in gold. What happened last time was that the economy recovered so slowly that there was no inflation. That really gave a chance to the Fed to suck up all the excess liquidity that they had created before inflation.
We have a similar dynamic going on now. If the economy recovers slowly, we might see people dumping their gold and start putting it in the market, because the uncertainty and the fear of inflation is just not high enough. But if the economy starts bouncing back aggressively– given the amount of stimulus that is already there in the economy–it will be very hard for the Federal Reserve to get rid of the excess liquidity quick enough to get rid of inflation.
So you are going to see interest rates begin to shoot up aggressively if the economy recovers too fast. That really is the key – after these rounds of stimulus, is it going to be a sharp recovery or is it going to be a gradual recovery ? If it is gradual, then there is plenty of time to prevent inflation, but if it’s an aggressive recovery, I think we will have a lot of people fleeing to gold.