When the ‘nuclear triggers are dusted off’ you own this asset to protect – Randy Smallwood
When it comes to assets to own during times of extreme global geopolitical uncertainty, there is only one that acts as the ultimate store of value and that is gold, said Randy Smallwood, CEO of Wheaton Precious Metals.
Smallwood said Michelle Makori, editor-in-chief of Kitco News, on the sidelines of the BMO Global Metals and Mining Conference that markets have been rather complacent about the threat of nuclear war.
His comments come as Russian President Putin threatened the West with “consequences greater than any they have faced in history” should a nation intervene in its invasion of Ukraine.
On Tuesday, stock markets tumbled on news that Russia was stepping up its attacks on Ukraine after the first round of talks between the two countries concluded on Monday. The S&P 500 fell 1.72% while gold gained 1.52%.
On Sunday, Putin placed Russia’s deterrent forces, which include nuclear weapons, on high alert in response to what some experts are calling unprecedented Western economic, political and strategic coordination.
For example, Switzerland, a country that has maintained its neutrality during periods of armed conflict in the past, recently announced it would side with Ukraine in imposing sanctions on Russia. Federal President Ignazio Cassis said: “We are in an extraordinary situation in which extraordinary measures could be decided.”
On Monday, President Biden attended a news conference, and when asked whether US citizens should be concerned about the possibility of nuclear war, he said “no.”
White House officials have widely condemned Russia’s escalation of the war, particularly the threat to use nuclear weapons.
“The only reason its forces are under threat today is because they have invaded a sovereign country, and one without nuclear weapons at that. This is another escalating and totally unnecessary step,” a senior government official told CNN.
“As a store of value in times like these, when I hear about nuclear triggers being dusted off, it’s been decades since anything like that was spoken of. It amazes me that we haven’t seen a little more concern about this globally and viewed the in-game characters as a necessary store of value. That, combined with inflation … it’s really a good, strong strength to have gold as part of your portfolio,” Smallwood said.
Putin is unlikely to back down from his aggression any time soon, Smallwood said.
“There’s a lot of ego involved. The challenge is to find an elegant way to bring the conflict to a halt. I just don’t think you can start something like that and then let it go,” he said.
Even if there was no conflict in Eastern Europe, fundamentals are still in favor of gold, Smallwood noted.
“We’re also seeing rising costs on a broader basis,” he said. “Inflation can be simplified as: your dollar just isn’t going that far, your euro isn’t going that far, everything is depreciating relative to hard assets, and gold is the most liquid, the best asset out there. All this bodes well for gold. We are in a long, 20-year uptrend in gold prices and we see that trend continuing.”
Because war could potentially slow global economic growth, the Federal Reserve may have limited tools to fight inflation.
“You’re running out of plasters. They’re running out of capacity on that front to put band-aids to hold things together. It’s getting harder and harder to maintain stability,” he said.
Smallwood’s gold price target is in the $1,800-$1,900 range over the next six months.
Over the longer term, silver is a metal that has excellent fundamentals due to industrial demand, Smallwood said.
“Fundamentals have not changed behind silver. Silver hasn’t performed as well as I’d hoped during this period, but it’s still doing relatively well. Silver just has so many more properties in terms of what it’s used for. More than half of silver today is consumed in high-efficiency applications, especially in today’s world when it comes to improving efficiency and reducing waste,” he said. “The political situation is likely to put more attraction back into the gold space, but silver is looking pretty good. Silver has the strongest fundamentals just because so much of it is consumed in industry and still functions as a precious metal and a store of value, but the gold market is so much bigger.”
While Russia is a top producer of platinum group metals (PGMs), the drivers of PGMs still remain intact despite the war, Smallwood said.
“I will say that the application of platinum and palladium, most of it, is tied to catalysts in terms of environmental and pollutant control, and they are interchangeable, although there are efficiencies. Platinum tends to work better with diesel engines, while palladium is more efficient with gas engines, and that’s one of the reasons palladium has outperformed lately, as we’re seeing a shift from diesel to gas. So if you start taking palladium off the market, palladium prices will go up and we’ve seen that. Undoubtedly, most of the palladium comes from Russia. Most of the platinum doesn’t actually come from Russia, it comes from South Africa,” he said.
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