Gold prices soar, but silver outperforms

Investing in a diverse range of commodities is expected to continue to pay dividends in 2025 as a hedge against inflation and economic volatility, with gold and silver expected to outperform other commodities.

Despite the optimistic outlook for 2025, Ole Hansen, head of commodity strategy at Saxo Bank, recommends that investors carefully consider the basket of commodities in their portfolios. Gold and silver remain his top picks after historic price increases in 2024.

Hansen forecasts gold prices to rise to $2,900 an ounce this year, representing a 7% gain from current levels. However, he sees greater potential for silver, with a forecast of $38 an ounce, a gain of nearly 30%. Hansen added that the outlook is biased to the upside.

On gold, Hansen stressed that the precious metal will continue to be an important safe-haven asset through 2025.

“Demand for investment in precious metals has increased due to the increasingly unstable geopolitical situation, with global tensions and economic volatility causing investors to seek safe assets. This trend shows no signs of abating. In addition, concerns about rising public debt, especially in the US, have prompted investors to choose precious metals to protect against economic risks,” he said.

However, Hansen noted that investors need to be patient as the Federal Reserve steps up its easing cycle. The market is now pricing in just one rate cut this year, a stark contrast to expectations a few months ago. The central bank’s hawkish stance could support the dollar, causing some volatility in the precious metals market.

Despite some headwinds, Hansen remains bullish on silver due to its dual role as both a monetary metal and an industrial metal.

“In 2024, strong industrial demand created a tight supply of physical silver. Sectors such as electronics and renewable energy, especially solar photovoltaic technology, contributed significantly to this boom.

Expectations of sustained industrial demand are likely to sustain a silver supply deficit into 2025, and could deepen with increased ‘paper’ demand via exchange-traded funds,” he said.

As silver continues to outperform gold, Hansen expects the gold/silver ratio (a measure of how many ounces of silver it takes to buy one ounce of gold) to fall to around 75 points from its current level of 88.

Hansen's bullish view on silver fits with his overall outlook on commodities, with him seeing more potential in metals that support the electrification of the global economy than in metals related to construction.

“Among industrial metals, we maintain a long-term positive view on metals that support the energy transition, particularly copper and aluminium, driven by investment in the grid coupled with rapid growth in renewable energy projects, from electric vehicles to solar and wind turbines. In contrast, we see limited potential for metals that rely on demand from the construction sector, such as iron ore and steel,” Hansen said.