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Welcome to this week’s market wrap podcast. I’m Mike Gleason

Coming up, we’ll have another wonderful interview, this time with Phillip Newman, founding partner and managing director of Metals Focus. Phillip reminds us that price corrections should be viewed as healthy consolidation periods rather than the end of a bull market, and tells us how the underlying price drivers remain fully intact.

Phillip also expects strong investment demand to potentially offset any possible slowdown we may see on the industrial demand side of silver that may result due to these recent higher prices. And Mr. Newman also shares some of the key drivers for these higher metals prices, along with his firms’ analysis of the developing shortage that has been materializing in silver specifically.

Buy the dips in gold!

That’s the recommendation of UBS analysts after the recent correction in the gold price.

After peaking near $4,400 an ounce, gold was hammered lower, falling to below $4,000. Since then, the price seems to have consolidated around $4,000, but volatility continues to dominate the market with significant daily price swings.

It’s important to put the recent sell-off in perspective, however. Even with the recent dip, gold is still up over 50 percent on the year and has essentially doubled since the beginning of 2024.

UBS analysts said the pullback is temporary and they still like gold in the $4,200 ounce range.

In a research note, UBS analysts said, “The much-anticipated correction has taken a breather,” noting that they don’t see any fundamental reason for the downturn.

UBS Global Wealth Management strategist Sagar Khandelwal said he sees an upside of $4,700 in the first quarter of next year due to falling real interest rates, a weaker dollar, rising government debt, and continued geopolitical uncertainty.

Khandelwal said with the Fed apparently committed to looser monetary policy, real interest rates could flip negative.

UBS emphasized that underlying demand remains strong, citing the World Gold Council’s third-quarter demand data. They say it confirmed very strong and accelerated buying by both central banks and individual investors.

Gold demand grew by 3 percent year-on-year in Q3, hitting 1,313 tonnes, the highest quarterly level in history.

Central banks alone have bought 634 tonnes of gold so far this year. UBS noted that while this is slower than last year’s pace, it is still on track to reach 900 to 950 tonnes.

Meanwhile, ETFs reported inflows of 222 tonnes of gold, while bar and coin demand surged to over 300 tonnes in Q3.

And despite higher prices, jewelry demand was also not as weak as feared.

UBS analysts aren’t the only mainstream voices recommending more gold. In a seismic shift in investment strategy that we’ve already been telling you about, Morgan Stanley CIO Michael Wilson recently recommended ditching the traditional 60/40 portfolio for a 60/20/20 ratio that allocates 20 percent to gold.

Charts and Parts Substack argued that this could lead the way to a broader institutional shift, noting that nobody likes to go first -- not in markets, not in start-ups, not in fashion. But once the ice breaks, the floodgates can open.

Meanwhile, silver has been on a wild roller coaster ride.

The question now, is the recent selloff a temporary correction or have we reached the end of the rally?

While the supply displacement that pushed silver to a new record high has moderated somewhat, the underlying dynamics that have been driving both silver and gold higher over the last two years remain in place.

Silver gained nearly 40 percent in two months. This is the definition of overbought, and a correction was inevitable. And correct it did.

After charting a new record high of $54.48 in mid-October, silver suffered the largest single-day selloff in years just 11 days later, plunging 16 percent to a low of $45.57 on October 28. Since then, silver seems to have found support in the $48 range.

It’s important to remember that even with the sharp correction, silver is still up over 65 percent this year and ranks among the best-performing assets.

Silver’s selloff corresponded with a similar correction in the gold market. Metals Focus called the correction “long overdue.” Our interview guest this week, Phillip Newman, will share more of Metals Focus’ analysis coming up here in just a moment.

If anything, silver's resilience in the wake of its $7 to $8 selloff from the highs is reason for optimism. The longer that silver moves sideways in the $45 to $50 range, the more likely it will not be heading lower. And it could just be recharging before a new rally back above $50 and beyond.

Of course, time will tell... but remember, these are volatile markets and it's never prudent to go all in on ANY investment theme, regardless of its merits.

Lastly here, before we get to this week’s interview, let’s take a look at the weekly market action and check in on where we stand currently with a few hours left in the trading week.

Gold is now up about $10 or a slight 0.2% to come in at $4,026 an ounce. Silver is down slightly – off 0.4% to trade at $48.72. Platinum is off 1.1% to check in at $1,564. And finally, palladium is down 2.9% and comes in at $1,421 an ounce as of this Friday morning recording.

Well now, without further delay let’s get right to our exclusive interview with a metals market insider.

Mike Maharrey: Greetings. I'm Mike Maharrey and I'm joined today by Philip Newman. Philip is a founding partner of Metals Focus and the organization's managing director in London. And always a pleasure to have you on the show. Philip, how are you doing today?

Philip Newman: Not too bad at all, Mike, and thanks for having me on again.

Mike Maharrey: Yeah, always a pleasure. And as you referenced, we have had you on the show before, but I don't want to assume that people know who you are or what Metals Focus does. So before we dig into the nuts and bolts, I would love for you just to kind of give an overview of what Metals Focus does in the work that you guys do.

Philip Newman: Absolutely. So, I'm one of three founding partners in Mellow's Focus. We started in 2013. We've now gone through over 30 staff that we have in eight markets. And what we do is we focus exclusively on precious metals research and market intelligence. We don't trade the market whatsoever. And the reason we've got so many people around the world is that we spend a lot of our time on the roads meeting companies across the supply chains, many of which are privately owned, trying to undercover really what's going on in the market. We bring that back that goes into our historic and forecast supply demand data sets in our cost models, our mine, cost models for example. And so you'll find that in reading a range of reports that we bring out. Most recently, just about two, three weeks ago at the LBMA conference in Kyoto in Japan, we launched our latest investment focus. So, that's around and in the market if you'd like to get a copy, get in touch myself or Mike and we'll happily put that through to you. So yeah, that's the kind of thing that we do globally.

Mike Maharrey: Yeah, absolutely. You guys, the work that you do is invaluable for the work that I do because folks like me rely on that data and you guys do a fantastic job of both gathering it and communicating it as well. Always enjoy getting your reports and stuff and use them quite often in my own writing. So, I appreciate all of that. So, with all of that in mind, let's talk a little bit about what's going on in the gold and silver markets. Let's start with gold. Both gold and silver have had a pretty healthy correction over the last several weeks. We seem to have kind of consolidated around $4,000 an ounce it feels like. But I'm curious as kind of how you're looking at this in terms of the data that you're seeing and the supply and demand data, do you think that this is, is it the beginning of the end of the bull market or is this just a healthy correction and is there still more upside that we can possibly anticipate?

Philip Newman: I think from our perspective at Metals Focus, it is definitely the second of those two. I think the runup in prices at times has almost like a straight line, especially even as recently as September. You look at the gains we saw for gold and silver and they were pretty eye ordering. And so I think it's quite healthy for the market when it does pause the breath when there is a correction period of consolidation as you say, I think that's very healthy and I think it's just quite remarkable the fact that you are talking about that gold has settled around $4,000 and to consider, I dunno, a price north of even $3,900 as a floor is really quite remarkable. Or for silver over $47, equally. And I think it's important despite that correction that bout of relative weakness, the markets have held, those prices have held firm, at least for now. And again, I think that's remarkably well is a very positive indicator from our perspective. When we look at the drivers for both metals this year, by and large, those drivers remain intact. We don't see them going anywhere. And so we think those positive price drivers will very much continue into next year. And from our perspective, push prices higher.

Mike Maharrey: What are some of those price drivers that you're seeing that are kind of fundamental? And I think that's a really important key. I tell folks all the time, you don't want to get too caught up in the emotion of the volatility that we can often see with metals. It is important to look at those kind of fundamentals. So what are maybe two or three things that you see that are really underpinning support for both of the metals right now?

Philip Newman: Sure. Well I think one of the common threads running through some of these drivers is the impact on the dollar. So we look at the state of US debt, is that how serviceable is that? And that certainly has put pressure on the dollar. We had this general de dollarization move as well. I think it sort of gathered momentum back on April 2nd when you had “Liberation Day.” I think that really rattled a lot of the markets and although there's been gradually some pushback on those tariffs and of course we've got the ongoing court case now with the Supreme Court, so we see how that plays out. But I think that really rattled a lot of institutional investors and I think probably one of the other things in terms from a dollar standpoint of course is the independence of the Fed. Even though there's been pushback against the firing of Governor Cook and the fact that Powell's term comes to an end, I think it's around April, may next year, we're looking to see who is going to be put forward and will they guarantee will they really push forward with the independence of the Fed.

I think that is an incredible question and I don't think we can underestimate the impact that can have on the dollar if the markets think that the independence is being undermined. So I think those are some of the things we look at. You've got the health or relative health of the stock market, maybe some overvaluation there, investors looking to diversify and then you've got the geopolitical backdrop now that I think is much more feeding into gold than silver, but you do get those spillovers between the two as well. So, I think those are some of the factors that we are looking at in terms of really pushing prices higher. And that's why I say that I think a lot of these drivers by no means are sort of short term by any stretch and as I said, I think there will certainly spill over or carry over into next year.

Mike Maharrey: Yeah, I agree with you completely and those are some of the main things that I've been really watching as well, especially the Fed I think. I wouldn't say it's certain, but I think it's highly likely that you're going to end up with a Fed chair that is much more amenable to easy money because that seems to be the will of Trump, and I would argue that we're already in a pretty loose monetary situation, so that's going to be really interesting to see how that monetary policy plays out and how it impacts inflation and all of those things. I want to talk a little bit about the silver market because we saw a really interesting phenomenon with the movement of physical metal. We had kind of a shortage or a squeeze in London, we had too much metal in New York. That seems to have settled out as far as I can tell. But I would really like for somebody like you who has kind of watched this closely to explain exactly what happened with the metal in London.

Philip Newman: Yeah, well I mean you've, there's plenty of metal in London as well. It is just a question of how much is available to the market because the vast majority of that silver is allocated to ETFs and I think at the end of September we got down to about, I think it was about 13 or 14% which was not allocated to ETFs. That's an incredibly low number. It's never been anywhere remotely close to that figure. And then at the same time you've also got very strong, again, I'm going back into September, incredibly strong Indian silver demand. Even though the Indian price has been at a record high long before we saw that in dollar terms investors there, retail investors tend to be naturally bullish and they were really buying quite hard into the market. And so India was just pulling metal from all sorts of locations, including London.

So, that was adding to that tightness. What was the specific event that caused lease rates to surge? Honestly we don't know, but I think it's a case of almost like the straw that broke the camel's back. I don't think it required much to really see lease rates pick up to see market participants maybe starting to pull metal back from the market, worried about liquidity. And so I think it became a little bit sort of self-fulfilling. We saw short-term rates spike to about 200%. I doubt or I don't know if I'm honest with you Mike, if any trades were done at those levels, but they were certainly done at eye watering points that we do know. And so that really started to encourage and me to come from the CME into London. I think the other point to add there of course is we've had, in terms of the volumes in the CME, there was a reticence by I guess risk managers at some financial institutions to release or to relocate some of that to London because we've had two black swan events in the matter of a few years.

You look at when you had the cessation of air transport in COVID, and now, we look at what's gone in the beginning of this year with the ETPs surging as well. And so if you are faced with that plus there's still some tariff uncertainty. So, you're faced with all of that and so it makes absolute sense to hold onto silver in the CME perhaps more than you would otherwise. And so if we look at the totality of identifiable silver stocks, they are high. It's, they weren't in the right place at the right time to be lent to the market.

Mike Maharrey: And I think I'm correct in understanding too that there was a big movement of metal to the CME into New York in April may because of the worry about tariffs. And that kind of added to it too, right? We had kind of an imbalance to start with that was kind of exacerbated by the sudden pickup and demand in London. Is that kind of a fair assessment?

Philip Newman: Yeah, you had metal coming from London, other parts of Europe, we know other places that were air freighting across the continent into the US and you also had Silver Loco US or local North America also being put on the exchange as well. But you are absolutely right. Some of that coming out of London again added to that tightness at a time when you had ETF demand rising as well. So, all of these, it was like a perfect storm really, but hence why again, lease rates spike to those levels that we've never seen before and now that's encouraged metal to come into London mostly by air freight because do you want to put it under water with lease rates where they were? I don't think so. And you knew that in London pretty quickly as well. So that's certainly been something that's going on in the past few weeks.

Mike Maharrey: Yeah, it's really interesting to think about the logistics involved in moving silver because it's much bulkier than gold. And it's interesting, we actually sent money metals, we sent a pallet of 1,000-ounce silver bars to India. So that kind of tells you just how much the metal was moving and what the demand was in India at that point. I'm curious though, we know that there had been structural market deficits for four straight years and so we're having a situation where demand is outstripping supply. Do you think that this was kind of indicative of maybe a little bit of that shortage more fundamentally in the market or was it really just a matter of metal being displaced? How do you see that?

Philip Newman: No, I think you make a really good point there. The deficits that we've had have been really eye watering. They started in 2021. Before that you'd had a mixture of surpluses and deficits, but 2021 was when we saw the really first big one. It was around by basis our numbers about 89 million ounces. Then it ramped up, it went through 200 million ounces. And so what you've seen now bet, including our estimates for this year, that you've had cumulative or combined deficits of almost 800 million ounces. Now some of that has come from identifiable locations, a lot of it has come from off exchange. And so that I think you're absolutely right, that has certainly added to that general tightness, which was then exacerbated by the moves or the metal coming into the CME as well.

Mike Maharrey: Do you see a falloff in industrial demand for silver with the price being so high? I've heard some analysts kind of talking about that this may kind of slow down the demand a little bit, at least on the industrial side. And is there enough investment demand to kind of counterbalance that in your view?

Philip Newman: Well, I think we are looking at some of that to certainly slow down. I think that when you've got a price of around $50 a volatile market risks of higher prices as well, there are some elements or some areas of the industrial market where there is going to be pushback. I think that is to be expected. If you can reduce the amount of silver that you are using but you don't have the trade off in terms of the utility of silver that you are getting in terms of a particular application, then yes, I think you will see that. Will that be offset by what we're seeing in investment? I think before we get to that, staying with the industrial, there are areas that are still growing. We think about the AI and the need for data centers for example. That's quite an exciting one. And it's not just about the amount of silver that's used in the data center, it's just the opportunities that the AI technology gives other areas.

So, I think there's a second order benefit and some of which we can't quite don't know about yet because there's almost limitless possibilities with AI. So I think that's really quite exciting. And then you look on the automotive side, the growth in EVs, electric vehicles and that growth has slowed, but you are still seeing market share gains by EV and electric vehicle uses more silver than say a hybrid. A hybrid used more silver than an ICE vehicle. So there are some positives out there in terms of will that relatively weakness be sort of mopped up or offset by bar and coin. I think the jury is really out on that. The weakness that we've seen at least until quite recently in the US retail market has really been quite something to watch. So, that is something we are keeping an eye on. I think for next year you could see coin and bar demand pick up a little bit. It's possible, but the fact now that we're in an environment and we've been this in a way since I think it's late ‘23 almost, so that's two years of quite decent levels of liquidations by retail investors. So will that carry on, will that dry up? I think the volumes that have come out are really a fraction of what's been bought in the us. That's something we are really mindful about.

Mike Maharrey: Yeah. Speaking of the US, I was looking at the World Gold Council's third quarter demand report, and this really struck me and I wrote this, I said the only region with the decline in gold bar and coin demand in the third quarter was the US coming in at just seven tons. It was the lowest quarterly total since 2017, 2019 during that trough. So what's going on with physical demand? It's wild to me. We've had this huge run up in prices and yet we've seen this retail investment demand kind of on the sidelines. Now it may be coming off now as we've gotten into September and October. How are you seeing this and how would you explain, I dunno that you can explain behavior, but it's just interesting. I’m wondering if you have any thoughts on that.

Philip Newman: Sure. So I think the first thing to point out, whether it's with gold or silver or platinum, that the figures we report for the likes of the US is on a net basis. What we try and do, and it's an imprecise science, it's really difficult to do, but we try to get an idea of gross purchases by retail investors and gross selling back by retail investors. And we combine those to give us the net figure that you are talking about. In other words, sorry, the gross buying by retail investors in the US is certainly higher than the figure you are referring to. Again, that's a really, I think an important point to make.

But to my earlier point, I think it really started around Thanksgiving ‘23 when we started to have liquidations emerge and that really ratcheted up for both metals. And I think there's a few reasons for that, Mike. I think one of the first ones is, it's a while, I guess we should be thankful of, it’s been a while since we've had a real crisis or an economic crisis in the US. I think it was about March ‘23 when you had the collapse of those two regional banks and that really galvanized buying, and in fact, ‘23 would've been much weaker if you didn't have that. So, that really, I guess, hid some of the weakness that was already starting to emerge. You've got a traditional one of high prices encouraging liquidations. I think another factor which is really important for the states specifically, a lot of retail investors, they tend to be Republican leaning if I can say that. And so with Trump's victory in the White House, not only that, but he won all branches. The government, he had a majority on the Supreme Court as well. I think for a lot of investors that took away the urgency to buy gold or silver and for some it encouraged them to liquidate as well. So I think those are some of the factors that we see really, really playing out in the marketplace.

Mike Maharrey: Yeah, I think that you make a couple of really good points and I didn't realize that those were net figures, so that's very helpful for me. It makes sense because just anecdotally, I know from our company, we've seen a lot of selling, a lot of liquidation, a lot of profit taking. And it’s understandable. When you have such a quick surge in prices, I think people get a little bit antsy when it gets too high and they're like, okay, I'm going to book these profits so I don't lose out. So that's fair. But I think you make a really good point too about the psychology, kind of the political psychology that you have going on with a lot of folks just being generally more optimistic about the economy because we have a Republican in office. Just between you and me, I'm not sure that that's necessarily justified, but it is what it is. So, that's a very good point. Well, I want to get you out of here. Before I do, I definitely want to let people know where they can find all of the mini reports and all of the great work that you guys are doing over at Metals Focus.

Philip Newman:

Sure. So it is quite simple. Our domain is metalsfocus.com, so please feel free to reach out to us. Just one thing, if I can mention while I've got you, Mike, which I think would interest a lot of your listeners as well, is that next Thursday, so November 13, we are taking part in a Silver Institute dinner and in New York where we're presenting our latest findings on 2025, an interim view, if you could call it that before we publish the final data set in World Silver Survey 2026 next April. And if there'll be a presentation for that, if people want to get a hold of a copy of that presentation, the Silver Institute will be making that available on their websites on the day of the launch. And we'll be talking about some of the things you've mentioned here about the liquidity crunch, about the impact of high prices on industrial demand, all the things you expect us to talk about. So that could be interesting for some of your listeners.

Mike Maharrey: Yeah, definitely. I'll be looking forward to checking that out for sure. Do want to really just encourage folks to avail yourself of the work that they're doing, because I don't think there's any place better that you can find this kind of data and the granular supply and demand stuff that the folks over at Metals Focus dig up. And again, I couldn't do my job without you guys doing your job. So thank you, appreciate that and appreciate you taking a little time out of your afternoon or my morning as the case may be to be on the show. It's always good to talk to you and appreciate the light that you shine on the markets and thank you for being on.

Philip Newman: No pleasure. Look forward to next time as well.

Mike Maharrey: Yeah, absolutely. We'll definitely have you on again and hope you have safe travels over here to the United States and enjoy your time in New York.

Philip Newman: Thank you. Looking forward to it. Alrighty.

Always great analysis from our friends there at Metals Focus and I hope you enjoyed that interview.

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