Diversified commodity exposure should continue to perform well in 2025 as a hedge against inflation and economic uncertainty. Specifically, gold and silver are expected to outperform the sector.
Despite the bullish outlook in his 2025 forecast, Ole Hansen, Head of Commodity Strategy at Saxo Bank, recommended that investors be discerning as they build a commodity basket within their portfolios. Gold and silver remain two of his top picks after their historic runs in 2024.
Hansen said he forecasts gold prices to rise to $2,900 an ounce this year, representing a gain of 7% from current levels. However, Hansen sees even more potential in silver, projecting prices to reach $38 an ounce, a gain of nearly 30% from current levels. He added that his outlook is skewed to the upside.
Looking at gold, Hansen noted that the precious metal will remain an important safe-haven asset through 2025.
“The demand for investment metals has been fueled by an increasingly uncertain geopolitical landscape, where global tensions and economic shifts have led investors to seek safer assets, a development that shows no signs of fading anytime soon,” he said. “Additionally, concerns about mounting global debt, particularly in the United States, have prompted investors to hedge against economic instability by turning to precious metals.”
However, he added that investors will need to be patient as the Federal Reserve shortens its easing cycle. Currently, markets are pricing in only one rate cut this year, a sharp contrast to expectations from a few months ago. The U.S. central bank’s hawkish stance could support the U.S. dollar, creating some volatility in the precious metals market.
Despite some headwinds, Hansen is more bullish on silver due to its dual role as both a monetary and an industrial metal.
“In 2024, increased industrial demand helped create physical tightness in the silver market. Sectors such as electronics and renewable energy, particularly photovoltaic (solar) technologies, significantly contributed to this surge. The expectation of sustained industrial demand is likely to keep silver in a supply deficit into 2025, potentially deepened by a pick-up in ‘paper’ demand through exchange-traded funds,” he said.
As silver continues to outperform gold, Hansen expects the gold-to-silver ratio to fall to around 75 points from its current level of 88.
Hansen’s bullish stance on silver aligns with his broader commodity outlook. He sees more potential for metals involved in the electrification of the global economy compared to those tied to construction.
“Among the industrial metals, we maintain our bullish long-term view on metals that support the energy transition, particularly copper and aluminum, driven by investments in the power grid, along with rapid growth in renewable energy installations from EVs to solar and wind turbines. On the other hand, we see limited upside for those dependent on demand from the construction sector, such as iron ore and steel,” he said.
Written by Neils Christensen for KITCO ~ January 20, 2025
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