Rising levels of debt and unpredictable policies enhance gold’s advantage compared to silver, says Shah from WisdomTree

Gold Maintains Strong Foundation Amid Shifting Market Dynamics

Although gold’s impressive surge earlier this year has slowed, the underlying factors supporting the precious metals sector remain robust. According to a leading market expert, these forces are increasingly tilting in favor of gold over silver.

Speaking with Kitco News, Nitesh Shah, who leads commodities and macroeconomic research at WisdomTree, explained that both gold and silver are navigating a turbulent macroeconomic environment. However, he believes that gold is better positioned than silver as a monetary asset in the coming months.

Following a dramatic rise and subsequent correction in January, gold prices have stabilized above $5,100. Shah characterized the previous month’s activity as unusually speculative, noting, “Gold experienced greater volatility than Bitcoin, which is highly unusual.”

Shah pointed out that while the market may need more time to settle, gold is attracting a broader range of buyers. These include Chinese insurance firms, pension funds, central banks, and even investors seeking exposure through tokenized and digital gold products.

Concerns about fiscal dominance—the notion that central banks may eventually have to support excessive government borrowing—continue to provide a solid foundation for gold’s appeal.

Investor Sentiment and Market Positioning

Shah observed that speculative activity in the options market remains strong, with significant interest in call options at “around $10,000, $15,000.” He described these as speculative bets, reflecting a market where “anything seems possible.”

While gold’s current consolidation appears healthy, Shah cautioned that silver’s recent performance may be less sustainable.

“Silver is more complicated, having already seen a substantial rally,” he explained. The gold-silver ratio is now “well below its historical average,” suggesting that “silver is relatively pricey compared to gold.”

Unlike gold, which is primarily driven by investment demand, silver’s price is more sensitive to shifts in industrial demand.

Shah expressed concern that, “Because silver is much more tied to industrial uses, higher prices could dampen industrial consumption.”

He anticipates that silver could underperform gold for the remainder of the year, expecting the gold-silver ratio to return to a range between 60 and 70.

Retail Demand and Potential Surprises

One unpredictable factor remains: retail investors might continue to favor silver simply due to its lower absolute price. Shah noted that demand for silver coins and bars could stay strong, even if the fundamentals increasingly support gold.

Monetary Policy and Gold’s Outlook

Looking ahead, Shah emphasized that shifts in global monetary policy—especially decisions by the Federal Reserve—will be crucial in determining whether gold can revisit its recent record highs.

The U.S. central bank is currently maintaining a neutral stance and appears unlikely to lower interest rates before summer. However, Shah stressed that monetary policy cannot be separated from fiscal challenges.

“Debt levels are rising everywhere. If governments can’t control their debts, central banks will eventually have to respond,” Shah remarked.

He added that if debt servicing becomes unmanageable and bond markets become unstable, central banks may be forced to intervene—either by reducing rates or through other forms of monetary easing. In today’s climate, expanding central bank balance sheets may be the most politically acceptable solution.

Global Trends and Gold’s Unique Role

This is not just a U.S. phenomenon. Japan, under Prime Minister Sanae Takaichi, is pursuing aggressive fiscal stimulus, while European nations are ramping up deficit spending to rebuild infrastructure and bolster defense.

Shah believes that the ongoing expansion of global central bank balance sheets will continue to support gold prices, emphasizing, “Gold is unique in that its supply is fixed.”

Portfolio Allocation and Future Potential

Despite elevated prices, Shah noted that allocations to both gold and silver remain very low, leaving significant room for growth.

He suggested that even small increases in portfolio exposure could have a meaningful impact on the precious metals market. “Our quantitative research indicates that an optimal portfolio might include 15% to 20% in gold,” Shah said. “Few investors are anywhere near that level, but even a move from 1% to 2% could significantly affect a market that is much smaller than global bond and equity markets.”