LAWRIE WILLIAMS: First day back - gold flat, silver stutters, equities dive
We continue to look for any definitive market trends as people return from their COVID restricted holidays after the U.S. Labor Day, which has often proved to set an inflection point for U.S. markets, which also tend to set the pattern for global ones. It is perhaps still too early to tell what the effects of renewed trading activity will be in the short to medium term, but we wait to see if the initial trends continue in the days, weeks and months ahead.
Initial market reaction was, to say the least, interesting in what it may portend. Gold and silver both opened down sharply in European trading but gold, in particular recovered most of its lost ground when U.S. markets opened and ended the day marginally ahead. Silver too came back up from the brink, but still ended up lower on the day, suggesting that some of the recent euphoria which had raised silver to being probably the best performing asset of all In July/August, may have run its course – at least temporarily.
However it was the all important equities markets which were most of interest – with all three major U.S. indexes closing down sharply. The Dow was down 2.25%, the S&P 500 down 2.78% and the high-flying NASDAQ down around 4%. Given the parallels with the post-Labor Day 1929 market performance, which we pointed out in a prior article a few days ago - Silver gaining faster than gold. Equities should beware Labor Day – which started the Wall Street Crash of 1929/30, the continuing performance of the U.S. equities markets will be under particular scrutiny. If equities continue to tank, the decline could be far-reaching and would likely affect the precious metals in a positive manner medium to long term. However, a serious stock market collapse could raise liquidity concerns leading to a temporary sell-off in precious metals too as individuals and institutions need to raise money by selling good assets in an attempt to stay afloat-as we saw in the 2008 market meltdown.
Equities were not the only sector which came down sharply. Oil and bitcoin did too, although the U.S. dollar index recovered some of its recently lost ground. Crude oil and bitcoin have both seen slight recoveries today and the U.S. dollar continues to move upwards a little so far.
The U.S. equities markets tend to be resilient so we wouldn’t be too surprised to see something of a recovery today, but one really needs to watch the performance over the next few weeks and months. Back in 1929/30 it took over a month before the major market crashes occurred and the full extent of the market decline was not reached for around a couple more years, interspersed with occasional partial recoveries providing investors with a series of false dawns. Be warned!
Should the equities and precious metals markets behave in a similar manner, we would anticipate gold bouncing back fully by the end of the current year, and silver perhaps not until early 2021. The temporary declines, if they occur, could thus provide some good buying opportunities, with the metals going on to ever better levels until the U.S. pulls out of the current recessionary phase – if it ever does given what could become the new normal continuing to affect some sectors of the economy adversely for years to come.
We thus continue to view gold and silver positively for the medium to long term whatever happens to the equities markets. Indeed a sell-off in equities, if it does happen, would likely further improve the longer term prospects for the precious metals complex even if it should adversely affect them in the short term.
09 Sep 2020