HardAssetsInvestor

Written by Sumit Roy  |

September 19, 2012

Best Of 2102: Kitco's Hug Expects Silver To Hit $50/oz If Gold Surpasses $2000/oz; Buy The Dips For Both

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HAI: Looking longer term, what is going to be the biggest driver of these metals? Is it the sovereign-debt fears? Monetary policy? Or is it currency movements?

Hug: Monetary policy, though if it’s not combined monetary policy between the Europeans and the Fed, there’ll be currency implications as well. We’ve seen that with the U.S. dollar, which has dropped about 8 percent in the past four weeks. It was trading at 1.20 to the euro and now it’s approaching 1.30 to the euro. As the Fed keeps interest rates at zero, stimulates the economy and puts more liquidity into the market, it makes dollars more abundant and creates less demand for dollars. That’s why the dollar has sold off.

The dollar sell-off off has been price supportive for the metals. But going forward, monetary policy is going to be the primary driver for precious metals, with the caveat being that geopolitical risks are also going to come into the picture, especially in 2013. I think the Iran-Israeli situation is going to come to a head in 2013. And some of the problems that we’re now seeing in the Middle East are only going to get worse, they're not going to get better.

So with those types of events, what I call flash-point events—where if something happened and oil shot up to $140—you could easily see the metals move up 5 to 20 percent on a fairly quick move. But on a sustained basis, monetary policy will drive the metals.

HAI: What do you see as causing the end of the bull market in gold and silver?

Hug: The end will not come until the Federal Reserve starts to raise interest rates, which they say they won't consider until 2015.

As they raise interest rates, gold will have a competing asset in government debt—something that’s safe and generates a return. But until interest rates get up to a 5 or 7 percent level—which is probably a minimum of three years away—I don’t see risk to precious metals on the monetary policy side.

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