Theme of the Day: Gold to reach $5,000/oz - Societe Generale

Gold has reached historic highs, not just in nominal terms but also in real terms and most investors think it has a lot farther to go. Silver is outperforming gold, but the market is 10 times smaller and so it moves much more with pressure from buying (as well as selling). The silver market has more industrial applications than gold and has been in a deficit for three years so industry participants are scrambling to access the metal in such short supply so it probably will rise faster and further than gold.What has shaken the world and made investors turn to gold? Firstly, uncertainty. “Normal” uncertainty index levels are around 100. In the GFC it reached 600, which is the same level we saw with the imposition of tariffs around liberation day. It is now at 300, three times normal levels. The elevated uncertainty means gold is an attractive asset and ETF flows have been huge as result, which has pushed up the price of gold as many ETF’s hold physical gold. It is hard to imagine a scenario in the foreseeable future where uncertainty normalises.De-dollarisation. Central banks are rethinking gold’s role in their reserves — and many are adding significantly. If the largest central banks, that hold less than 15% of their total reserves shifted 1% of non-gold assets into gold that would mean the top twenty banks would buy almost 700t of gold. Banks have paused buying gold for now, but we believe the buying will pick up again, pushing gold to $5,000/oz by this time next year.Trading view on silverSilver is now up more than 125% year-to-date, an extraordinary move as investors continue to view it as a core safe-haven hard asset. Today’s $3+ trading range is becoming standard in this environment. And as we continue to make new ATHs, remember corrections and sell-offs will be larger and sharper than in prior cycles. As prices continue to surge, trading ranges remain extremely wide, particularly in this period of year-end illiquidity. Expect these kinds of moves to continue as we head into the holiday season and year-end when most banks are reluctant to add risk.I’m getting asked constantly for a price forecast for next year. I’m not a fan of forecasts; too many unknowns can reshape the narrative. What I can say is that my long-term outlook for both gold and silver remains firmly bullish. The underlying drivers have not changed: economic and geopolitical uncertainty, continued global diversification away from the USD, and central banks steadily adding gold to reserves. FOMC will be lowering USD interest rates.Silver, meanwhile, remains in a structural deficit. Mine production is expected to be flat in 2026, while Oxford Economics’ recent study shows industrial demand increasing steadily over the next 4 years. New mines take 10-20 years before you see production. Silver OTC tightness in London persists, which makes recent claims that “there is plenty of silver around” difficult to reconcile with actual market conditions. Longer-dated OTC silver forwards continue to move lower (further into backwardation), reinforcing the structural tightness. Forward bids for 3–12 months are between –5.0% and –4.0%, implying 7.5–8.5% lease rates plus credit spreads. Backwardation in silver forwards stretching out 5 years, a clear sign of structural supply pressure. The EFP rallied as expected with today’s 5% price move.