Jessica Fung, Commodities Analyst for BMO Nesbitt Burns, explained her firm’s belief that gold has always been and will always be a safe-haven investment. Fung sticks to the mainstream perspective that the Federal Reserve is still planning to raise interest rates in 2015, though she does admit that BMO now predicts the Fed is going to push back that rate hike. It’s interesting to watch a major financial firm dance around the increasingly confused market sentiment and convoluted messages from the Fed.

Investors should take note that major financial players are starting to publicly admit that gold is an essential investment regardless of the supposed strength of the US economy or dollar – exactly what Peter Schiff has been saying for years.

Video length: 00:04:09

Follow along with this full transcript:

Daniela Cambone: She’s the Commodities Analyst for BMO Nesbitt Burns. Jessica Fung joins me at the BMO Metals and Mining Conference. Jessica, good to see you.

Jessica Fung: Thank you

DC: So Jessica you obviously write the majority of the research reports on commodities for BMO so you’re an excellent person to talk about gold with this morning. Let’s talk about the recent price action we’ve been seeing in gold and the volatility we’ve really been seeing since the start of the year.

JF: Sure, so there are two issues for us in terms of the gold price earlier this year. The first is that the start of the year tends to be a stronger period seasonally anyway for gold prices so it wasn’t too much of a surprise for us. But what was a surprise was the extent to which gold prices rose in an environment where the US dollar was also strengthening. And really what we saw there was the fact that there was a lot of safe haven buying taking place in gold, mainly on the back of Europe and Japan.

DC: And that’s really the question, is gold a safe haven? Is it still a safe haven?

JF: It absolutely is. In our view it absolutely is and it always will be, and that is what it will take to drive gold prices higher, is the safe haven aspect of gold prices. If we look through history, you know, the last time we saw a major gold price run was during the oil crisis in the 70’s. And then the next time we saw a real gold price run was right ahead of the financial crisis. So it takes these types of events to really drive that gold price up.

DC: So we have global unrest, but what’s the factor that’s not allowing gold to really rise? Is it primarily the strength of the US dollar or are there other factors at play?

JF: It is partly due to the US dollar I would say, just from a trading perspective. But the other issue is, generally speaking, the consensus view is that GDP growth is going to kind of muddle along. And that even though we have unprecedented actions taking place by the central banks, it is going to be enough to get us out and see a recovery. So because we are expecting a recovery, it is very difficult for the gold price to move on a safe-haven event. That being said, if we don’t manage to grow ourselves out of this debt, if we don’t manage to take ourselves out of the recovery, then of course it would be very positive for gold from a safe-haven perspective.

DC: And what about silver? How do you see silver set up?

JF: Silver to us very much trades on the back of gold and it is twice as leveraged to gold price moves. What we’ve seen in the past, interestingly enough, is when gold prices move up, silver prices will move up twice as much. And when gold price is on the way down, silver moves down twice as much. And so what we see is this increasing gold to silver ratio. In this environment where we expect, you know, the US dollar to continue to strengthen, I think we’re going to maintain a very high gold to silver ratio. And that’s why we haven’t seen silver really pick up despite the fact that gold prices have moved up a bit.

DC: So are you expecting a pick up in silver later in the year? A rally?

JF: It’s going to depend on that US dollar. And at this point in time we still see the US dollar strengthening as a structural move. It’s not just a trade. And so in this environment it’s difficult to see silver prices really outperforming gold. But if we get to the point, maybe next year, maybe the year after, when the US dollar starts to weaken, certainly silver will outperform.

DC: And I guess the other major question is will they or won’t they? Will the Fed raise rates later in the year? Any thoughts?

JF: Our house view is we’ve recently moved that rate hike out to September from June previously. And now we think there will be two smaller moves in September and December. But the risk is that if globally the US cannot be sustained on its own, then certainly we could see that rate hike move into next year and I don’t think that’s an uncommon view that is emerging.

DC: Great. Well, Jessica, I’ll let you get back to the conference. Thanks so much for stopping by.

JF: Thank you very much, it was a pleasure.

DC: Thanks for watching our coverage here taking place from the BMO Metals and Mining conference taking place in Florida. We’ll have more for you so stay tuned to kitco.com. Thanks for watching.