(Kitco News) – Gold will rally in the second half of the year as the Fed resumes its rate cuts, but the real story right now is the massive impact that President-elect Donald Trump’s tariff threats are having on global silver stocks, according to TD Securities’ Senior Commodity Strategist Daniel Ghali.
In a Jan. 7 interview, Ghali said that investors need to take notice of an unprecedented situation that’s unfolding in the silver market right now.
“It’s hard to see it in flat prices, but over the last month there’s been a huge disruption in precious metals markets where the threat of universal tariffs on metals is leading traders around the world to bring metal in from London and other global venues into the U.S., only to hedge against the risk that tariffs will be implemented on precious metals,” he said. “Historically they haven’t – precious metals have been considered money in effect – but if they were to be subject to tariffs, then traders holding short positions against metal that they actually hold somewhere else in the world would be subject to substantial losses.”
“In order to hedge against that risk, they’re bringing metal into the U.S.”
Ghali clarified that he’s not talking about contracts or other financial instruments, but actual, physical metal that is being brought en masse into the United States, and the implications are profound.
“This could inadvertently lead to a stock-out in the world’s largest metal vaulting system for silver in London,” he said. “This is the biggest story in commodity markets right now. Silver markets seem to be just completely sleepwalking into a potential stock-out.”
“A stock-out is a moment in time where the inventories of the metal cross a critical threshold below which the [market] structure is challenged,” Ghali explained. “If you think about how the world trades physical precious metals, the global venue for that is sitting in London but most people actually use U.S.-based contracts to hedge price risks. So the challenge here is that the threat of universal tariffs is leading metal to go from the world’s largest venue into the U.S., depleting that inventory buffer that traders use for over-the-counter transactions every day.”
“And mind you, we are now in a fourth consecutive year of very substantial deficits in silver,” he added. “This trend of depleting inventories was already set up, and this is simply something that’s accelerating that process.”
Galley agreed that this scenario could only be very price-positive for silver.
“I think there is the potential for explosive price action in silver if we do meet that critical threshold,” he said. “We’ve seen glimpses of this in other commodities over the last few years. Copper last year had a very substantial rally on a similar theme, and in previous years, palladium was a really good example of a market with a similar setup. Silver markets today just appear to be completely sleepwalking into this setup.”
Ghali acknowledged that current silver prices in no way reflect the seriousness of the situation. “I also think it’s a very under-covered story,” he said. “This is something that could potentially be very significant, but macro investors are just completely flat in silver markets, and nobody’s really paying attention to this.”
For investors who do want to stay on top of the situation, Ghali said there is credible information on silver stocks, but the data won’t tell you exactly how quickly the buffer is being depleted.
“The LBMA, which are the custodians of the metal, publish some data on their vaults on a monthly basis, so you can certainly follow that,” he said, but warned that “a lot of work has to be put in in order to estimate how much of that metal is actually freely available for purchase.”
“There might be a billion ounces sitting in the London vaults, but only 300 million of that is actually freely available for purchase, according to our estimates.”
Asked where TD sees silver prices going in response to this scenario, Ghali was very bullish. “We think that silver is going to end your closer to $40 an ounce, so a substantial gain from today’s prices,” he said.
Turning to gold, Ghali said the situation with the yellow metal is also interesting, as some key support is returning to the market.
“We thought there were some signs of exuberance heading into U.S. elections,” he said. “If you think about the setup back then, you had central bank buying activity substantially slowing,” he noted. “Macro funds – who buy gold to trade the Fed outlook, the global economy and so on – were holding extreme long position sizes. At the same time, the physical market had ground to a complete halt, there was a complete buyer’s strike.”
But today, he’s seeing signs that the buyers strike has finally ended. “We think there’s a strong correlation between currency depreciation pressures in Asia and the strength of the physical market,” Ghali said. “Clearly, the threat of tariffs on China has led to some currency depreciation pressures there, and there are signs that the physical market is finally reigniting again. That could lead to more central bank buying activity, but also institutional and retail buying out of Asia, which has been one of the big missing pieces for gold prices to continue making gains.”
Asked if he expects to see a decoupling of the gold and silver price due to the two metals being driven by very different macro and market factors, he said the opposite is more likely to occur.
“Investment flows which are correlated between gold and silver tend to drive the overwhelming variation in the supply-demand balance for silver,” Ghali said. “Silver is overwhelmingly an industrial metal, solar has been a bigger contributor to total demand growth over the last few years in a very significant way, and so there is a decoupling that’s happening behind the scenes. But I actually would argue this is going to be a recoupling, in the sense that silver is trading extremely cheaply relative to gold, so from a long-term perspective, there’s a long way to go for silver only to catch up to gold’s price performance.”
Ghali is also optimistic about the gold rally resuming in 2025, though he expects this will only happen in the second half.
“We think gold is going to be fairly range-bound,” he said. “There’s going to be opportunities to trade it both ways throughout the course of the year, but we are expecting the Fed to remain on a prolonged pause in the first half of the year, and that could constrain some of these macro fund positions, which have subsided since the U.S. election but still remain bloated.”
“But towards the latter half of the year, we think the Fed is going to resume its cutting cycle more aggressively than is currently priced into markets, and so there could be some opportunities to buy gold throughout the year.”
Gold prices saw a strong run-up on Tuesday, with spot gold spiking as high as $ 2,670.15 per ounce shortly before noon EST before pulling all the way back to $2,650 per ounce.
Spot gold last traded at $2,655.66 per ounce for a gain of 0.27% on the session.
Silver has encountered firm resistance at $30.30 over the last few days, and after failing once again to breach that level shortly after the North American market open, it slid to a session low of $29.789 around 12:40 pm EST.
Spot silver last traded at $29.933 for a loss of 0.31% on the daily chart.
Ernest Hoffman
Ernest Hoffman is a Crypto and Market Reporter for Kitco News. He has over 15 years of experience as a writer, editor, broadcaster and producer for media, educational and cultural organizations. Ernest began working in market news in 2007, establishing the broadcast division of CEP News in Montreal, Canada, where he developed the fastest web-based audio news service in the world and produced economic news videos in partnership with MSN and the TMX. He has a Bachelor’s degree Specialization in Journalism from Concordia University. You can reach Ernest at 1-514-670-1339.
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