In a recent interview on the Sprott Money, veteran portfolio manager Bob Thompson of Raymond James provided a compelling analysis of the current dynamics shaping the precious metals market. Drawing on his extensive experience and deep understanding of the sector, Thompson offered insights into the factors driving gold's impressive performance, silver's relative underperformance, and the significant role of Chinese demand.
Thompson addressed the recent surge in gold prices, attributing it, in part, to the weakening US dollar. "I think the US dollar is in decline for a relatively long period," Thompson stated. "In that environment, the first out of the gate is always gold." He explained that as the dollar weakens, commodities priced in US dollars, including gold, naturally tend to rise.
However, silver's performance has lagged behind gold, a discrepancy Thompson finds particularly noteworthy. He highlighted the historically high gold-silver ratio. "The gold-silver ratio is 100 to one," Thompson pointed out. "When has it ever been at 100 to one other than in a crisis?" He suggested that this extreme ratio presents a significant trading opportunity, implying that silver is currently undervalued relative to gold and is likely to catch up. "That's the trade right there," he asserted. "It might not happen in the next six weeks, but there's the trade."
A key element of Thompson's analysis focused on the burgeoning demand from China. He posited that a "new whale" has entered the market, driving gold demand. "It's China and it's a billion, you know, over a billion people, not just not just the government, but retail," Thompson explained. He believes that Western markets are still underestimating the impact of this demand. "We're not understanding this new whale in the room yet," he cautioned, suggesting this sustained buying pressure from China is a significant driver for the sector.
Thompson also provided an update on his proprietary "mining clock," a tool used to gauge the stage of the mining sector cycle. He placed the current market around the "five or six o'clock" position, indicating that there is still significant room for growth before reaching the peak. He noted that the junior mining sector, often the last to rally, is beginning to show signs of life. "The TSX Venture… is up 10% this year," he highlighted, suggesting that money is starting to flow into these smaller resource companies.
Thompson touched on the role of market analysts, observing that they tend to be "followers, not leaders." He believes that significant upward movement in resource stocks will likely coincide with analysts increasing their price forecasts for gold and silver.
Regarding investment strategy, Thompson revealed his current positioning. "At 100 to one at crisis level… trading patterns for silver… that's the place to be right now," he stated. He also highlighted the potential of silver stocks, noting that many are not yet pricing in significant silver price increases. "That's when you get the multiple baggers going forward," he suggested, emphasizing the need for patience in this sector.
Watch the full interview:
