The precious metals market is warming up with gold and silver rising sharply (14% and 26% respectively) since the beginning of the year, a bullish exploit driven by the growing demand from emerging markets and the strategic moves of central banks which signals a new phase in the gold bull market.
Speaking is Ronnie Stoeferle, managing partner of Incrementum AG, who explains: “We are now in a new phase of this gold bull market: what we are seeing in the markets is the classic initial bull market action with the mining companies in the sector that drive the market and, in this context, silver is outperforming gold.”
The Gold – Silver ratio, or the amount of silver needed to purchase one ounce of gold, fell to around 79, showing the strong performance of silver versus gold.
Gold mining stocks, particularly those tracked by the VanEck Vectors Gold Miners ETF (GDX) are posting notable gains: Over the past three months, the GDX is up about 13%, reflecting growing investor confidence: “Companies mining – underlines Stoeferle – drive the price of gold and are outperforming the bullion itself”.
The GDX’s performance is significant because it represents a broad range of gold mining companies, which often act as a leverage play on the price of gold. When gold prices rise, mining stocks tend to rise even more as their profit margins increase. This is due to the relatively fixed costs of mining operations, meaning that higher gold prices translate directly into higher profits.
One of the main driving factors of this bull market is the surge in demand from emerging markets which, alone, accounts for almost 70% of the overall demand, a real turnaround compared to past years when the gold market it was driven by traditional Western markets.
Turkey’s interest in joining BRICS+ (Brazil, Russia, India, China, South Africa and other partner countries) further highlights this shift. As Turkey aligns itself more closely with BRICS+, it aims to strengthen its economic ties and increase its gold reserves, reducing its dependence on the US dollar.
Major gold purchases by central banks, especially after the invasion of Ukraine, have also played a vital role with purchases of the yellow metal tripling since Russia invaded Ukraine.
Stoeferle is optimistic about the future of gold, predicting a long-term price target of $4,800 by 2030: “We presented this model in the In Gold We Trust 2020 report and said that $4,800 is our price target at long term for the end of this decade…”.
Source KitcoNews
