Gold and Silver: Precious Metals On the Move

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May 14, 2024 | (62 mins 54 secs)

Both gold and silver have posted notable gains in 2024. Gold reached a new high of $2,420 in April, with strong support coming from central bank buyers like China looking for an alternative to the U.S. dollar. Silver appears to have formed a base at the $26 level. Demand for photovoltaic solar panels climbed to new highs in 2023 and has helped support the current silver prices.

• We believe several fundamental factors are in place for gold to potentially move higher, particularly strong central bank buying.
• Gold mining equities continue to lag the yellow metal and are at historically low valuations.
• Silver is benefitting from its dual role as both a precious and industrial metal in the face of declining mine production.
• We see three primary drivers for a higher silver price: 1) silver tracks the rising gold price due to central bank buying, 2) reflation trade and 3) increased solar panel demand.

Featured Speakers

John Hathaway, CFA
Managing Partner, Sprott Inc. and Senior Portfolio Manager
Sprott Asset Management USA, Inc.

Maria Smirnova, MBA, CFA
Managing Partner, Sprott Inc. and Senior Portfolio Manager & Chief Investment Officer
Sprott Asset Management

Edward C. Coyne
Senior Managing Partner, Global Sales
Sprott Asset Management

Webcast Transcript

Sarah Martin, RIA Database: Cover Slide

Ed Coyne: Slides 2-4, Introduction

Edward Coyne: Thank you all for joining our webcast today. I've asked two featured speakers, John Hathaway and Maria Smirnova, to join us today.

And again, my name is Edward Coyne. I'm the Senior Managing Partner and Head of Global Sales at Sprott Asset Management. I'm going to be walking you through the webcast today.

John Hathaway is a Managing Partner and Senior Portfolio Manager at Sprott Asset Management. John joined Sprott in January 2020 and is a Senior Portfolio Manager of the Sprott Special Situations Strategy and the Co-Portfolio Manager of the Sprott Gold Equity Fund. Previously, John was with Tocqueville Asset Management LP, where he was a Co-Portfolio Manager of the Tocqueville Gold Fund.

John began his career in 1970 as an equity analyst at Spencer Trask & Company and earned his BA from Harvard College and MBA from the University of Virginia. John also holds a CFA designation.

Also with us today is Maria Smirnova. Maria is a Managing Partner, Senior Portfolio Manager, and Chief Investment Officer at Sprott Asset Management. Maria has over 24 years of investment experience and joined Sprott in 2005 as a Research Associate supporting the metals and mining team.

Currently, Maria serves as a Lead Portfolio Manager of the Sprott Sub-Advised Silver Equities Fund and Co-Portfolio Manager of the Sprott Sub-Advised Gold and Precious Minerals Fund. Maria also serves as a Portfolio Manager on the investment team for the Sprott Gold Equity Fund.

Prior to joining Sprott, Maria served as a Product Development Analyst at Fidelity Investments and holds a Master of Business and a Bachelor of Commerce from the University of Toronto and also has the CFA designation.

For today's webcast, I've asked John Hathaway to discuss gold's performance and outlook. Then, we'll turn to Maria Smirnova to discuss silver's performance and outlook. Before we open the webcast to Q&A, I'll touch briefly on ways to allocate both gold and silver to your portfolio.

For our listeners on today's webcast who aren't familiar with Sprott, Sprott is a global leader in precious metals and critical materials investments. With over $29.4 billion in assets under management as of the end of the first quarter, Sprott has a full suite of solutions in both exchange-listed products, managed equities, and private strategies. Sprott is a publicly listed company and trades on both the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol SII.

I want to turn it over to John Hathaway to talk about gold's performance and its most recent outlook. John?

John Hathaway: Slides 5-14, Gold Performance and Outlook

John Hathaway: Thanks, Edward, and good morning or afternoon to everybody listening in. Gold has broken out decisively from a three-year consolidation. It happened recently, just this year. It's been trading back and forth for what seems like an endless period of time. But now I think the message is clear that the metal is headed higher. And we'll look at a couple of charts and discuss the possible upside. I know it's easy to think, "Well, I missed the move," but we are still in the early days.

And I think the most exciting opportunity is in gold mining equities. Even today, they lag what the gold price has done, or they're neck and neck with the gold price, which is uncharacteristic. Typically, they outperform in a bull phase, which the metal is doing. And I'll talk a little bit about the reasons why that is. And I think the point I want to make here is that the leverage to higher gold prices in the gold equities is very substantial. And the fact that they haven't moved yet, I think, is why the opportunity here and now is quite compelling to make investments in the mining equity space.

Lastly, on this first slide, I want to bring up the point that gold has had this powerful move and a breakout and is headed higher, in my opinion, despite the fact that there's no interest or very little interest from investors in our part of the world. What's taking place here is really because of factors overseas. There are some macro factors that I'll talk about.

In Western capital markets, investors are asleep at the switch. And there are reasons for that. Many people are very comfortable with their existing portfolio allocations in mainstream equity allocations and maybe even in fixed income. But I do think that that can change. And I think when investors in our part of the world start to get interested in gold and gold mining equities, we could see gold trade well above where it is today. Right now, it's trading roughly around $23.50 an ounce. Once our part of the world gets on board, we could see gold trading in a range of $2,500 to $3,000 over the next year and a half or so.

Let’s go to the next slide, please. Here’s what I was talking about. The slide shows that going back to the summer of 2020 and just the beginning of this year, gold was locked in a range of roughly $2,060 on the upside to probably just a little above $1,600 on the downside. So, it's been doing a lot of churning and work for the last three years. And then, at the beginning of this year, it broke out decisively.

Technicians would tell you that this pattern should resolve itself in a move close to $2,500, and that's editorializing and probably conservative. But I think you should study this chart and draw your conclusions. But the breakout is decisive; it's not going back below $2,000 and is probably headed higher. So, let's go to the next slide.

One of the best-kept secrets in the Western world is that gold has outperformed everything: stocks, including dividends, bonds, and, of course, the U.S. dollar, since 2000. I don't think most people would know if you asked them randomly. But it's a fact.

Why do we use 2000 as a starting point? It is the beginning of radical monetary policies. Greenspan was followed by Bernanke, and now we have Powell. I'm trying to think of the right analogy: the toothpaste is out of the tube. We're on a treadmill of money printing and currency debasement. Gold has figured this out, and there are many reasons for it. I will suggest a couple of the factors behind this.

Let's go to the next slide. This, again, is to the point and a terrific slide. The positioning of investment advisors is the lowest since 2019. And you can, at your leisure, come back and look at it. But that tells you that nobody's aboard. And if the pendulum swings more in the direction of investors wanting to take a positive view of gold and gold mining stocks, plenty of buying power is waiting in the wings. And I guess this is another way of saying that we are at the very early stages of a powerful bull market in gold and gold mining stocks.

Let's go to the next slide. This is the consensus forecast of major banks. The major banks would include J.P. Morgan, Morgan Stanley, and Merrill Lynch, all the establishment thinking. And the forecast is for gold to decline between today's levels by, let's call it, 10%, 15%. I don't know what they're thinking with how the world is changing. But I think this is a reason for the lack of interest. It’s your favorite economic forecaster being clueless about what's going on in the gold space. I don't want to beat that horse too much, but this is one of the major reasons investment interest in what we at Sprott are doing is still, as I said, "Asleep at the switch has missed the train, the train is moving." So, enough on that. Consensus expectations for gold are totally out of whack with reality.

Let's go on. And this, again, is to the point of lack of investment. So, the gold price has done what it's done: tremendously higher, with more to come. At the same time, investors in gold-backed ETFs, GLD would be the principal, have been selling, so assets are declining in GLD. But if you go back to the formation of GLD in 2004, you can see that there was tremendous asset accumulation by people in our part of the world. And that was instrumental in driving the gold price substantially higher through the middle and late years of the first decade of this century. That hasn't happened yet. But again, when folks in our part of the world wake up to what's going on, that's how I get to my arm wave of gold trading between $2,500 and $3,000. Enough on that. Let's go to the following chart.

This, to me, is a big deal. I want to say here that the shelf space of the U.S. dollar as a reserve asset has been in a steady decline, and it's at the lowest level it's been over the last 20 years. So, there are a lot of things to say about this. The first thing I would say is that trade is being done increasingly away from the U.S. dollar. You'll see on the next slide, I believe, that central banks have been buying record amounts.

And why is that? There are many reasons for it, but geopolitics plays a role. I think that the fact that the U.S. has weaponized the U.S. dollar. Yes, here's the central bank slide, but let's go back to the other one. Weaponizing the U.S. dollar was a big factor in why gold has started to take off and, especially, to outperform against bonds. I think bonds are a big factor. I don't have a slide on that, but gold has broken out against TLT, 20-year treasury ETF, and also against TIPS. That started about the same time when the U.S. started to weaponize the dollar, particularly for adversary countries, Russia, and I think it started with the war in Ukraine and what we did with freezing Russian reserve assets held in the U.S.

There are fewer dollars settling trades, and they're being settled in local currencies, whether RMB, Indian Rupees, or Brazilian Reals. And when there are surpluses, they are being recycled into gold. That's why central banks have been buying. They're not being cycled into U.S. treasuries in this style of the petrodollar, a big factor going back to the mid-1970s. Here, we have less and less pools of capital available or willing to recycle trade surpluses into U.S. dollars at a time when treasury issuance is off the charts, budget deficits running at $2 trillion, and a full employment economy and what happens in a recession. We haven't seen the rubber meet the road here.

But when you have treasury issuance going up and the pool of capital available to absorb that going down, it's only a matter of time before the Fed starts back on a path of quantitative easing and much easier monetary policies. I would even make the statement that the Fed, which you see so much obsession about on Bloomberg and CNBC and whatever channel you tune into, is less relevant than ever. The relevant things I've talked about are the central bank buying of gold and the lack of willingness of foreigners to hold cycle trade surpluses into U.S. Treasuries.

Let’s go to the next slide, which we've just looked at. Record buying by central banks of gold has been a big factor underpinning the gold price today. And then, if we go to the following chart, which is really what I'd like to focus on and maybe have as the takeaway for what I'm talking about. The opportunity, of course, is in owning the metal itself. In my opinion, it's become the premier safe asset, displacing bonds. I think the message is slowly and surely getting out. I'm not saying there isn't a trade in bonds if we have a recession, but on a longer-term basis, I would say that gold has emerged as the premier safe asset.

Then, gold stocks, which are joined at the hip with gold because their margins are affected mainly by what the gold price is doing, have a lot of other factors that we, as a team, look at daily. However, gold price is the most important determinant of earnings and cash flow for gold mining companies. And you can see here that gold stocks have lagged for the last ten years at a time when the gold price has done well. And gold stocks seem to be stuck in neutral. They're starting to wake up. I want to leave you with that for portfolios with a more aggressive stance in terms of positioning for a longer-term scenario of monetary debasement, gold stocks, I think, are where you want to have at least some allocation.

And I would say, based on flows into the VanEck GDX, which is the proxy for the level of interest in gold mining equities, there have been no inflows. On balance, year-to-date, they've been either flat or neutral, even though gold stocks are up probably about 14% year-to-date. Especially if the gold price continues to move higher, as the technicians think it will. And that should be very good for gold mining stocks' earnings and cash flow.

In closing, I would mention that the market cap of the entire gold mining space is about the same as that of Home Depot or MasterCard. So, it will not take a lot of money to move in when it decides to create outsized moves, percentage moves, and gains, again with the backdrop of improving fundamentals in gold mining equities. You could take this as me pounding the table on "This is the time to get aboard, to build positions in not only gold but also in gold mining equities."

And with that, I will complete my remarks and turn it back over to Edward to introduce Maria.

Edward Coyne: Thank you, John. And John, before we go to Maria, in your view, because you've been doing this for multiple decades now, why do you think investors aren't paying attention? A, they're leaving physical gold and B, they're not even thinking about gold equities.

Have you seen a time like this over the last couple of decades of investing? That previous chart is very telling that investors aren't paying attention right now. What do you think is going to change that?

John Hathaway: Well, that disconnect, I've never seen. As you mentioned, I've been doing this for 25 years now. I've never seen it. I attribute it to the strong stock market and the consensus expectation of a soft landing. We don't have time to get into a debate on that.

If either the stock market or the economy falters, I think that would be a prop for consensus thinking. I would attribute those two factors to disinterest in gold mining and gold mining stocks.

If either of those things changes, I think people will look for other things to do. One of the things they'll find very appealing will be what I've just talked about.

Edward Coyne: Great. Thank you for the clarification. That's very helpful. I want to turn it over to Maria to talk a bit about what's going on in the silver market and its performance. And Maria, give us an outlook on what you're seeing in silver.

Maria Smirnova: Slides 15-24, Silver Performance and Outlook

Maria Smirnova: Thanks, Edward. And thanks, everyone, again for joining us today. I will echo what John said about gold, as many of these factors also apply to silver. Now, silver, of course, is an interesting metal. I always call it "a metal of two heads," being the investment side and the industrial side, but overall, I would say the similarities with gold are that silver is breaking out, or we think it's broken out. The metal itself is under-followed and, in the West, is under-invested. However, equity, specifically silver equities, is also under-followed, under-owned, and cheap. And I'll have slides on all of this coming up.

Silver equities exhibit tremendous leverage over silver bullion. Similarly to gold, sell-side analysts, by far and large, have silver prices declining into the future. So, in the chart John showed with gold price projections, similar things can be said about silver prices. That affects how we value equities and the value we place on them.

But I would also argue that silver is infinitely harder to find. Silver is not that hard to find in the Earth's crust, but finding economic deposits of silver is very hard and getting harder, and developing these deposits has been harder. Again, I'll show a slide of what's happening with mine supply over the last few years.

So, here we are. This is a graph of the silver price. It's currently trading at around $28.50, so about a dollar higher than this chart shows. Something that people always ask me about is "the gold to silver ratio." It's about 83 to one. In fact, it's moved rapidly from 90 to one at the beginning of this year to now, 83 to one. As a reminder for people, silver can move quite quickly.

The gold-to-silver ratio peaked at 120 back in COVID-19 times. And since then, obviously, it's gone to 83 to one. It has averaged about 59 to one since the seventies. I won't belabor this point, but that's the magnitude of the moves, relatively speaking, that we can see.

Let's turn the slide. This chart is similar to what John showed: the flow of silver ounces into and out of ETFs. As you can see, the blue line has been declining since about 2021. We have seen silver outflows from the ETFs, and a similar thing has happened. A similar thing happened at the end of 2022, where the silver price disconnected from these flows, even though up until then, it was correlating pretty strongly with the flows.

It shows that the demand for silver bullion in the West has been quite weak. Again, there have been outflows, but the price of silver has disconnected. We think it's primarily because of a demand out of the East, with China and India being the big consumers of silver. Now, I like gold, and Central banks do not buy silver. So, there are other variables at stake here.

So, let's turn the slide. On this slide, I'm not going to talk about India. I can mention India because they have been big importers of silver recently. And, of course, it's a big investment vehicle for individuals in India. But what we're seeing in China also is a lot of trading activity, and that's picked up again somewhere at the end of 2022, so it correlates with that disconnect with the ETFs.

As the right chart shows, silver activity on the Shanghai Trading Exchange has picked up since then. It's also important to note that the Chinese people are paying a premium over the spot price of silver, and it's reached as high as $4 an ounce. Again, it's a change in magnitude. $3 to $4 is a pretty high premium to pay just to have the metal delivered to China.

And again, that means that this metal is a physical trade. China and India want the physical metal. They're not content with just having paper metal. And that's a very important factor, especially for silver. Silver is used in many different ways, especially in industry, but in small amounts. In a lot of these uses, you don't recover the silver back. The fact that the silver's physical ounces are going, likely we're never going to see them again.

And I would like to take a closer look. Unfortunately, this will be a very busy chart, but I wanted to talk about this silver supply and demand and what's happening with the different variables here. Let's start at the top and let's start with supply. And this is, by the way, history over the last ten years as you can see going back to 2014. What I focus on is the top line. Look at mine production. We have lost about 50 million ounces from 2014 to last year. Fifty million ounces, that's 5% of the market we lost just in mining. So, the mining industry never was able to recover after that drop in production and COVID.

Recycling has been up 20 million ounces, but that's not upsetting the decline in production. So, the overall supply has declined by about 50 million ounces since 2014.

That’s a big number because, again, as I mentioned earlier, silver is hard to find. Even though silver usually comes with lead, zinc, copper or gold, it's getting harder and harder to find an economic deposit. Grades are coming down, and geopolitics are playing a role because many countries are becoming more difficult to work in, and so that's affecting the mining industry.

Now, on the demand side, we've gained a huge amount of about 174 million ounces from 2014 to last year. Again, the market has about one billion ounces of supply, as you can see here. So, to gain an incremental 170 million ounces is huge. Most of that growth has happened in industrials.

You can see the top line of the demand side. That's where we've seen the most gains. A lot of these gains have come from the electronics sector. If you think about anything we hold in our hands, any electronics we have, such as phones, computers, our cars, these things have silver in them, again, in small quantities, but multiply that by billions of units, and it adds up.

The big driver recently has been photovoltaics. This is part of a green drive of countries around the world wanting cleaner air and trying to transition away from fossil fuels. So, of course, all these numbers make silver a great green metal. Not everyone is realizing that yet, but I'm reading that more and more people are catching on.

So, in terms of the photovoltaics, let's focus on that for a little bit. You'll notice that from 2022 to 2023, the photovoltaics grew by a whopping 70 million ounces, a huge growth. Why is that happening? Solar panel installations grew rapidly last year. Some estimates say 80% last year alone. China drove a lot of it, and of course, it's also driven by these incentives, such as governments providing subsidies and incentivizing individuals and corporations to install cleaner energy. And solar is a great benefit.

We can go to the next slide. A lot has been said about thrifting in solar. But I think we're reaching a point where thrifting is becoming more and more limited. And what we're reading more and more about recently is the emergence of newer technologies. And this is the chart on the right, the very right chart, and the middle chart: the newer technologies use more silver per watt of energy. So, the older technology is called PERC, which uses 15 milligrams per watt of energy. Whereas the newer types of panels, TOPcon and HJT, use, on average, 50 to 150% more silver. So, the loadings of these new panels are going up.

And guess what? The middle chart is showing that the penetration or the acceptability of the newer technology is increasing. So, all of this means that it will hopefully offset the thrifting that has been going on and combine the increased installation capacity every year, which will only lead to more and more silver being consumed.

Edward Coyne: Hey, Maria, before you go to the next page, could you address solar panels as we've gone into the second and third decade of these now being used and consumed at a much higher level, more public level? Can you talk a little about the recycling?

There is a lot of misinformation out there about whether solar panels are recyclable. Could you also discuss that and what it looks like from the supply-demand standpoint?

Maria Smirnova: Yes, I have read conflicting reports about recycling. First of all, solar panels last quite a long time—at least 20 to 30 years, so the cycle is long. But I've not read about a widespread recycling program. It's very hard to extract silver from the silica of the panels. Similarly, it's easy to recycle a fork, knife, or silverware, but it's much harder to extract these tiny amounts out of telephones and TVs and very expensive.

Again, that goes back to that slide that I had, "Scrap supply or Recycling." That line has not been growing—it has not been growing for at least the last four years, I would say. So, I think recycling is limited. There are limited things you can recycle. I'm not anticipating, and at least I've not read about a wave of this silver coming out of the solar panels.

Edward Coyne: Thank you. So, to your point, silver gets consumed, and it doesn't reenter the market in many cases?

Maria Smirnova: Right. Unless it's in the form of a coin, a bar, or something chunky.

Edward Coyne: Thank you.

Maria Smirnova: So, to finish on recycling. As many people know, it is the most exciting area of the market. Going to the next slide, someone at Sprott, not myself, just to be clear, somebody with less invested in this, tried to make a projection using past data. "By 2030, how much silver will we need for photovoltaics?" According to this projection, the answer is that with a 16% average growth rate, it's about 370 million ounces.

Again, to put that into perspective, I always go back to the fact that it’s a billion-ounce supply market. So, if we need an extra 200 or 150 million ounces, that is between 10 and 20 major silver mines. And by major silver mine, I define it as 10 million ounces. That's a major silver mine. We're just not seeing the discoveries and new supply coming on to provide that metal.

So, what does that all mean? Well, these deficits that we're seeing will continue, and I think they will grow. And that just means one thing: that is going to be good for the silver price. We can see explosive moves in the silver price.

Let's touch upon something else now: exchange silver inventories. There has been a pushback on "why does silver price not behave better?" Well, the above-ground inventories have been a pushback.

We can turn to the next slide. Here, I show just the exchange-traded inventories. Sometimes, people tell me, "Well, we should also look at all other vaulted silver, or we should count ETFs." I don't necessarily agree with that because I think I am looking for what's readily available. What is readily available if there's a deficit and a shortage?

According to this chart, you can see these adds together: LBMA, London, SHFE, Shanghai, and the COMEX exchanges. And as you can see, there's been a significant drop in the last couple of years. Since February 2021, we have lost about 480 million ounces from these exchanges alone. And that's very material. That is a good trend to see because, before 2021, inventories were growing, so this is a major step change, and now the inventories are headed in the right direction.

It is just taking this a bit further and going to the next slide. Many ounces in London or the LBMA are earmarked for ETFs. And in fact, about 500 million of the 800 million ounces are earmarked for ETFs. So, that means only 300-something million ounces are available as “free float.” That’s important because we're trying to establish, "If there's a shortage, where's the metal coming from? What are the sources for the metal?" And, if we have this metal locked up in ETFs, it's not technically freely available. So, that gets me excited to think about the future of silver. You take a stagnating mine supply, you had to that very healthy growth in demand, which translates to dwindling inventories. Well, that is exciting. This is why we're starting to see the price move.

Let’s talk about the equities now. As I mentioned in the beginning, similar to gold equities, silver equities have been beaten up. A couple of years ago, they reached trough levels. Here, we have a simple chart. I'm not talking about cash flows or anything like that. It's just an enterprise value per ounce of metal in the ground. Only recently has that been perking up, as shown by the blue line. The blue line is the producers, and the gray line is the developers. So, both have been at low valuations.

The developers have suffered, and their valuations are low. That is one thing that I always say to my investors; this is something I focus on: "I'm always looking for the next exploration story. I'm looking for the next discovery. Who will find the next mine?" And again, only recently, starting with this outbreak in the silver price, have valuations started to recover. But as you can see here, we're not nearly at valuations of years past, and this is not going back far. Before 2020, back in the last run, these valuations were much higher as well.

I think John touched upon the Fed pivot and how the economy is doing. We know one thing: silver equities consistently outperform both bullion and gold equities immediately following a Fed pivot. So, when the Fed signals that they're turning their posture from tightening to easing, the equities start reacting. And we think we've had that kind of pivot in December. It's a pause for now. And the expectations of a Fed cut have been pushed out recently. But we think it is happening.

In January 2001, during the tech crash, in November of 2008, during GFC, January 2016, December 2018, and March 2020, silver equities rocked. And I'm not talking 50%, 70%, I'm talking 200%, 300%. These are the kinds of gains that we can see in these equities when there's a turn in policy and when the sentiment changes for the better. And I think I've named a lot of reasons why we like silver and why we think it's going in the right direction. Hopefully, sooner or later, the equities will start to reflect that. We need some interest coming back here to the equities, particularly in the West.

Edward Coyne: Thank you, Maria. We'll open the webcast in a few moments to address the many questions that have come in. We're close to 60 questions now. Our sales and marketing team will respond via email or phone call for those that we don't get to.

Before we do that, I want to talk a bit about a core general allocation and a bit about "How do gold and silver fit into an investor's portfolio?" And to answer that question, it depends on a couple of factors. And this is not that different than other investments. You have to think about the investor's risk tolerance. And that equates to the physical market relative to the mining or equity market. "What are your overall objectives? What kind of time horizon do you have? Any income requirements that are needed?" And just your general overall financial situation.

The simple answer is based on how much risk or equity exposure you have in a portfolio. So, if you've traditionally had a 60-40 portfolio of 60% equity stocks and 40% bonds, we would recommend about a 5% to 10% allocation, taking a little bit from each, both on the physical side and the equity side, to give you some exposure and help you diversify your portfolio. Conversely, if you're much more opportunistic and have, say, 80% allocation equities, then we would suggest something in the double-digit realm of, say, 15% in gold and gold equities.

We always say physical first. When you're thinking about metals in general or precious metals in particular in a portfolio, the physical side of the market, physical gold, physical silver, has really been the low-cost way to have a liquid hedge in your portfolio. Then, the equities themselves are viewed and used traditionally as more tactical. So, think of the physical as more strategic, more evergreen in a portfolio as a diversifier, and the equities as more tactical.

As John Hathaway said, "A potential replacement or complement to both fixed income and, in some cases, particularly for international investors, and to cash." You think about it from a currency standpoint; gold and silver have offered wonderful diversification opportunities within a portfolio. We would say that on the conservative side, 5%, and on the more opportunistic side of your portfolio, say up to 15% in gold, silver, physical and or equities seems to be appropriate when we look at what's been the most effective way to allocate to this space.

It comes down to low correlation. If you look at gold as an example, gold has had consistently, over two-plus decades now, a low correlation to virtually every asset out there, whether you're talking about U.S. Equities, International Equities, U.S. Fixed Income, Cash, Real Estate, and even other commodities like oil, gold has had a low correlation. And at the end of the day, when you're looking to diversify a portfolio, you want things that have a low correlation that perform at different times for different reasons. The chart John Hathaway showed earlier about gold doing quite well over the last multiple decades and outperforming virtually everything speaks to the fact that it is an asset that performs differently at different times.

So, for those on the call today who are interested in what we're doing from a firm standpoint, from an investment product standpoint, I encourage all of our financial advisors and brokers to reach out to our senior investment consultants on the financial advisor individual investor team.

For those on the home office front, I'd encourage you to contact our key account team. And I've even seen a couple of institutions with some questions coming in that I recognize the names. And for our institutional clients, I encourage you to reach out to Glenn Williams and his team.

So, for those that have more interest in what we do and how we do it and the product suite we offer, please reach out to us, learn more about how we can help advise you and guide you down this journey, down this path of allocating to both the physical market and the equity market.

So, with that, I'll pause for a moment and turn it over to Sarah before we open up the webcast for Q&A.

Sarah: Great. Thanks, Edward. Yes. So, as a reminder, our materials can be found in the documents folder at the bottom of your screen. We appreciate your feedback. Please take a moment to fill out our brief survey at the bottom of the console.

Our speakers will be taking advisor questions. Please type your question in the box under the slides window, and we'll get to as many questions as possible. In the event your question is not answered on today's webcast, a member of the Sprott team will reach out to you directly.

If you'd like to discuss the ideas covered during today's event further, please click the "Blue Confirm" button in the media request box on your screen. Then, I will send the message back to Edward for Q&A.

Edward Coyne: Great. Thank you, Sarah. And I think we've got about 10 minutes for Q&A. As I mentioned, if we don't get to your question, we'll be responding via email and or phone call from our team.

The first question is a good one for John Hathaway. And it's, "If the Fed doesn't lower the benchmark interest rates this year, how do you think that will impact gold and silver spot pricing in the short and medium term?"

John Hathaway: In a word, I don't think it matters. I think the Fed has become less and less relevant. They're really sort of sneaking back into QE. They've reduced the pace of balance sheet reduction. And in addition, the Treasury is now buying a substantial part of Treasury auctions. So, I think you could almost say the Treasury and the Fed have merged. And frankly, I’m sort of disjointed in my answer. But I think, by and large, the Fed doesn't matter anymore to the gold narrative. I think there are so many other things that come into place before what Jerome Powell says or does or doesn't do.

Edward Coyne: Thank you, John. Interestingly, you see that gold has been doing quite well in both rising and lowering rates. So, I think you're on to something there.

The second question is for Maria. If you assume no growth in solar production, how does that impact silver demand? Are there other things driving that demand?"

Maria Smirnova: That's an excellent question. First of all, the solar market has reached a critical mass, which is about 20% of the market, so we're already in deficit, right? So, the base case here is a supply-demand deficit.

The other areas we can discuss are electronics and green energy transition-based. I did not discuss this in detail today, but it's basically vehicles. EVs have a much higher silver loading than combustion engine vehicles. And I don't know the magnitude—it might be double. So, just by adopting electric vehicles, we're increasing total silver consumption. That is one area.

And, of course, the big one could be that if we do have a change of sentiment, and this has happened very drastically in the past, the physical investment line of the supply-demand function will fly up. We can see increased investment demand. Again, we've seen increased investment demand in the East, but we're not seeing it right now in the West. And as I've pointed out, ETFs have been an outflow, so if that reverses, that would be a huge factor to contribute to the deficits.

Edward Coyne: Great. Thank you. John, let's go back to you. This relates to gold miners. I guess it's a comment/question. And it says, "You know, gold miners have had this type of price run-up in the past. What makes their miners different this time versus the past when they did expensive takeovers and buybacks? Are you seeing different behavior from miners today?"

John Hathaway: Overall, there is more financial discipline. I think that's partly because of investor pressure. This is true of every company. The other thing I would point out is that many of these companies are self-financing at these gold prices. They do not need to issue stock to stay in business or to build projects.

I would say we're in a sweet spot. I'm not saying they will always be more intelligent about their financial decision-making. Still, right now, I would say we're in a sweet spot because margins have expanded dramatically, and costs are rising, but much more slowly.

And I think the message from the market that they are hearing is that the market doesn't like huge capital builds. So, I think that the bar in terms of return on capital, at least again, I'm talking about a sweet spot of a couple of years where financial discipline will be exercised. So, the sins of the past—I'm not saying forever, but at least for the time being, I think they are their history.

Edward Coyne: Great. Thank you. Let's go back to you, Maria. This is based partly on what John had mentioned about gold versus gold equities. "Are you seeing a similar disconnect between the price of silver relative to equities that predominantly mine silver?"

Maria Smirnova: Yes, absolutely. Silver equities have underperformed silver bullion until very recently. Yes, it's a very similar picture.

Edward Coyne: Thank you for that. Here’s the next one. This goes back to the comment I guess you made, John, regarding bonds: "How can physical gold be considered a safer asset than bonds given its much greater volatility than a five-year or ten-year treasury?" Do you have any comments on that?

John Hathaway: Sure. If you look at the performance of gold versus bonds, it's been lights out in favor of gold. Again, to me, it's just a trade. If there's a recession, I think bonds will do very well. But if you look at the fiscal aspects of the U.S. and the mismatch of supply and demand that I talked about in terms of foreign entities no longer less willing to cycle back into treasuries, it's not a very pretty picture. So gold, I think, just by demonstrating superior performance to bonds over the last 20 years, I think that makes the point.

Is gold more volatile? I'm not so sure. Bond volatility, particularly in treasuries, has been quite high. So, I really question whether bonds can maintain their status as the safe assets they used to be.

Edward Coyne: Thank you. Let's stick with you for one moment on gold a little further. Maria question, "Maria commented about silver and its demand for renewable and sustainable energy. Are you seeing anything like that as relates to gold, or does gold continue to be simply a monetary metal?"

John Hathaway: No, I think it's a monetary metal. Any other argument really doesn't carry that much weight. So, it's very different from silver.

Edward Coyne: Thank you, John. And Maria, let's go back to you. Every time we have you on, and there are silver comments, the gold-to-silver ratio always comes up. Investors like to talk about it. The question is: "What are you seeing out there right now? Are there any signals that the gold-to-silver ratio is out of whack, or do you see it humming nicely? What should we be looking for going forward regarding the gold-to-silver ratio?"

Maria Smirnova: Well, yes, it's definitely out of whack. As I mentioned, since the 70s, the average gold-to-silver ratio has been about 59, so let's round that to 60. Well, it's now 83, and that's a recovery from 90. So, it is still out of whack.

Now, it could go to 40, and it has gone to 40 in the past. It does swing around quite a bit. But it is low right now. I would expect it to revert to at least an average. That's why my prospect for silver is very bright, partly because of this kind of out-of-balance situation we have right now.

Edward Coyne: And Maria, what is the modern average for gold-silver ratios? Is it still in the 70 range, or has that changed a bit as well?

Maria Smirnova: It depends on how far back you go since the 1970s and 60s. More recently, it's 70 from my math. And, you know, it went as high as 120 in COVID times, so we are below that.

Edward Coyne: And silver snapped back quite nicely when it was at 120 if I remember correctly?

Maria Smirnova: Yeah, that precipitated. And it was very interesting because when it reached 120, people were throwing in the towel on silver. And I said, "Okay, well, no, this is the bottom for silver." And, of course, post-COVID, it did bounce back nicely.

Edward Coyne: Great. Thank you. We have many more questions than we can answer right now. But again, we will reply to everybody in the next couple of days.

John, why don't we end with you? And this goes back to the basics of investing in gold and silver, I guess, to that extent. And the question is, "As a newer investor in commodities, how should I think about the physical market versus the miners or the equities?" Could you give us some insight on that? And maybe this is a two-part answer. Maybe, John, you could talk about it a bit. And then Maria, maybe you can talk about it. "How should one think about the physical market? And how should one think about the equity or miners themselves?" So, let's start with you, John.

John Hathaway: I have to do this in a minute. Gold is a safe asset. For people with low-risk tolerance, the metal is the better place to be. If an investor agrees that we're in a world of monetary debasement and wants to maximize exposure to that, then gold stocks may make more sense, but risk tolerance has to be involved.

Edward Coyne: And is there anything else to add to that, Maria, as it relates to the silver allocation?

Maria Smirnova: Well, yes. I would use silver and silver equities as a layer on gold and gold equities. And let's remember that there is overlap in the equity space, anyway, not in the bullion. However, much of the equity has gold and silver, so there is an overlap. But I would use silver as a layer on gold.

Edward Coyne: That's a great point, by the way. Gold and silver overlap so much that many mines are producing both. So, thanks for that.

Well, we certainly appreciate everyone being on the webcast today. John and Maria, thank you very much for also taking the time to do this. Again, please reach out to us if you would like to learn more about Sprott as a firm and the product suite we offer, whether you're looking at allocating to the physical market to offset some of that risk in your portfolio or the equity market to participate in the opportunities we see coming our way, as John and Maria have mentioned. So, once again, my name is Edward Coyne. Thank you for listening to today's webcast.