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LAWRIE WILLIAMS: Confidence up? Most precious metals and equities showing gains

This week has seen a promising recovery in precious metals prices and gains in equities and bitcoin, however unjustified this may be – at least as far as the latter are concerned.  The improvements are probably down to an increasing view that the Covid-19 virus pandemic is being brought under control as countries and some U.S. states reduce their pandemic-alleviation restrictions and the thought that perhaps something like normality will return to our lives by the northern hemisphere summer.

This euphoric reaction in the markets may well be premature.  It looks to be still a little shaky and appears to totally disregard the damage already inflicted on global economies by the pandemic – and may well be too soon anyway as one cannot yet rule out virus infection surges as some restrictions are eased.  The scientists in both Europe and North America are warning of such, but their apparent pessimism may well go unheeded.  The political pressure to try and get people back to work, and revive the economy is intense and looks to be overriding the scientists’ fears.

While we have been consistently downbeat on equity markets and bitcoin – and been proved very wrong so far - there is also a sense out there that gold and the other precious metals are still technically in a weak phase.  Gold, which is probably key to the whole precious metals complex, certainly seems to be having difficulty, as I write, in breaking upwards through what seems to be strong resistance at the $1,720 level.  Indeed it and the other precious metals have come down a little this morning.  Gold may well have risen around $40 on Tuesday, but it probably needs to rise by another similar amount before it may be seen as breaking out of its recent downbeat weekly range, let alone get anywhere near back to its heady heights of last August.  How precious metals sentiment has changed since then.

Silver and platinum, if anything are doing better than gold in percentage terms, while palladium appears to be being left behind, as does high flying rhodium, which suggests that perhaps sales of gasoline (petrol) powered light vehicles may not be picking up as fast as expected, or perhaps electric-powered non-polluting car sales may be making bigger inroads into the market than projected.  There is likely to be a growing switch to non-polluting drive systems, particularly as a number of countries are implementing legislation to ban the manufacture and/or sale of internal combustion-engine powered light vehicles within the next decade or so.  There is a chance that the more environmentally conscious Biden administration in the U.S. may follow suit, particularly as all the big motor manufacturers seem to be gearing up for such a switch, and may therefore not wholeheartedly oppose such a move.  Interestingly, here in the UK, virtually all new light vehicle TV advertising seems to be promoting electric-powered vehicles or hybrids.

But, back to gold and precious metals.  They do seem to be mostly out of investment favour for the time being, and it may take a big reversal in equity valuations toput them in a better light.  Precious metals investors should also bear in mind that a big fall in equity values, if it happens, will probably bring about liquidity issues, forcing sales of what might otherwise be considered as safe haven investments alongside loss-making equities.  Should this happen to gold, one can probably expect it to recover its losses comparatively quickly, and then go on to enhanced levels, but it may take longer for its more industrially sensitive cousins to recover any similarly lost ground.  

10 Mar 2021

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