When it comes to assets to own during times of extreme geopolitical uncertainty around the world, there’s only one that acts as the ultimate store of value, and that’s gold, Randy Smallwood said. CEO of Wheaton Precious Metals.
Smallwood told Kitco News editor Michelle Makori on the sidelines of the BMO Global Metals and Mining conference that markets have so far been rather complacent about the threat of nuclear war.
His comments come as Russian President Putin threatened the West with ‘consequences greater than you have faced in history’ if any nation intervenes in its invasion of Ukraine.
On Tuesday, stock markets fell on news that Russia had stepped up its attacks on Ukraine after the first round of talks between the two countries concluded on Monday. The S&P 500 fell 1.72% while gold rebounded 1.52%.
On Sunday, Putin put Russia’s deterrent forces, which include nuclear weapons, on high alert in response to what some experts call unprecedented economic, political and strategic coordination by the West.
For example, Switzerland, a country that has always maintained its neutrality during times of armed conflict, recently announced that it would stand with Ukraine and impose sanctions on Russia. Swiss President Ignazio Cassis said: “We are in an extraordinary situation where extraordinary measures could be decided.”
On Monday, President Biden attended a press conference and when asked if American citizens should be worried about the possibility of nuclear war, he said “no.”
White House officials have widely condemned Russia’s escalation of the war, particularly the threat to use nuclear weapons.
“The only reason his forces face a threat today is because they invaded a sovereign, nuclear-free country. This is yet another escalating step and totally unnecessary,” he said. a senior administration official told CNN.
“As a store of value in times like this, when I hear about dusting off nuclear triggers, it’s been decades since there has been any such discussion. I’m amazed we haven’t seen a bit more concern about this globally, and considering in-game characters as a required store of value. That, combined with inflation…there’s really good strength in having gold in your portfolio,” Smallwood said.
Putin is unlikely to back down from his aggression anytime soon, Smallwood said.
“There are a lot of egos involved. The challenge is to find a graceful way for the conflict to end. I just don’t think you can start something like this and walk away from it,” he said.
Even though there has been no conflict in Eastern Europe, the fundamentals are still in favor of gold, Smallwood noted.
“Even on a broader basis, we’re seeing costs go up,” he said. “Inflation can be simplified because your dollar doesn’t go that far, your euro doesn’t go that far, everything is devalued against hard assets and gold is the most liquid, the best asset there is. Everything is bodes well for gold.We have been in a 20 year long upward trend in gold prices and we continue to see this trend moving forward.
With a war potentially slowing global economic growth, the Federal Reserve may now have limited tools to fight inflation.
“They are out of bandages. They have less and less capacity on that front in terms of being able to put band-aids on to hold things together. It is becoming more and more difficult to maintain stability,” he said.
Smallwood’s gold price target is between $1,800 and $1,900 over the next six months.
Over the long term, one metal that has excellent industrial demand fundamentals is silver, Smallwood said.
“The fundamentals haven’t changed behind the money. Silver hasn’t performed as well as I would have hoped during this time, but it’s still doing relatively well. Money has so many more attributes behind it in terms of usage. More than half of the silver is now consumed in high efficiency applications, especially in today’s world where we talk about improving efficiency and reducing waste,” he said. . “The political situation is probably bringing more appeal back into the gold space, but silver is looking pretty good. Silver has the strongest fundamentals simply because a lot of it is consumed in the industrial sector and still acts as a precious metal and a store of value, but the gold market is so much bigger.
While Russia is a leading producer of platinum group metals (PGMs), PGM engines remain intact despite the war, Smallwood said.
“I will say that the application of platinum and palladium, most of it is related to catalysts in terms of environmental control and pollution control, and they are interchangeable, although there are gains in platinum tends to work better with diesel engines while palladium is more efficient with gasoline engines, and that’s one of the reasons that palladium has outperformed lately, is that we are seeing a shift from diesel to gas. So you start taking palladium out of the market, palladium prices are going to go up and we’ve seen it. There’s no doubt that most of the palladium comes from Russia. The most of the platinum does not come from Russia, but from South Africa,” he said.
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