Huge News! Central Banks Are About to Change Gold & Silver Prices FOREVER - Alasdair Macleod
Huge News! Central Banks Are About to Change Gold & Silver Prices FOREVER - Alasdair Macleod
The US dollar's share of global foreign exchange reserves has fallen to its lowest point in 30 years, now standing at 57.4%.
Central banks are diversifying their reserves into gold and a basket of other currencies, including the euro, yen, pound, and "nontraditional" reserve currencies. Central banks had spent decades unloading their gold holdings, but about 10 years ago, they started rebuilding their stash.
In this video, Head of Research for Goldmoney Alasdair Macleod describes a typical bull market where speculators drive prices, followed by institutions and the public. Central banks, led by China, act earlier by reducing US dollar holdings and buying gold, reflecting geopolitical concerns and distrust of Western currencies. According to the IMF, central banks' gold holdings have surged over this decade to 1.16 billion troy ounces – roughly 3.08 trillion dollars, compared to 12.3 trillion dollars in foreign exchange reserves.
Regarding the market prospect, Macleod notes poor sentiment in the West, where gold exposure in portfolios remains less than 1%. However, US institutional interest is rising, with some managers adding gold as a strategic portfolio asset. Gold has outshone other major asset classes over the past two years, with the yellow metal a standout performer even compared to the consistently strong US equities.
Traditionally viewed as a safe-haven asset, gold's performance may be surprising given the macroeconomic backdrop that is not typically conducive to strong returns for the asset class. Historically, robust economic conditions and the months before and after the US presidential elections have benefited riskier assets such as equities and energy prices. However, gold has still appreciated significantly since the fourth quarter of 2022.
Seasoned investors, including Alasdair Macleod, underscore silver's mispricing, with the gold-silver ratio at an unusually high 90, far exceeding historical norms. He attributes silver's undervaluation to its removal from the monetary system despite its vital industrial uses and relative scarcity—only eight times more abundant than gold. Silver prices collapsed over the past decade, leading mining companies to curtail investment in exploration and development due to poor economics. This manifests as stagnant mined supply growth during rapidly escalating industrial demand. Many major silver-producing countries, such as Peru, China, and Mexico, reported lower output in 2024.
Silver inventories on the LBMA and COMEX fell by 50% over 2023-2024 to 321M ounces, the lowest levels since 2010. Without material supply growth, these inventory buffers that have bridged the supply-demand gap may soon be exhausted, forcing the physical market into backwardation and pushing prices higher.
Moving forward, Macleod foresees a surge in gold prices, which could set off a substantial squeeze in the silver market, fueled by growing demand. Meanwhile, silver's close ties to gold were during periods of currency weakness and economic uncertainty.
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