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LAWRIE WILLIAMS: Gold and silver crash further despite falling dollar

Gold fell back below $1,800 an ounce and silver below $23 in weak U.S. trade during the Thanksgiving holiday period.  Interestingly, though, the principal correlations between gold and the inverse of the 10 year Treasury Inflation Protected Securities (TIPS) yield and the inverse of the U.S. dollar index both suggested that gold should have risen rather than fallen.  The price performance thus seems to be euphoria-related over the likelihood of an anti-COVID vaccine being rolled out quickly, hopefully putting the global and U.S. economies back on a growth track – a sentiment supported by both the latest services and manufacturing PMI figures.  In our opinion this has been a reaction that is too soon and too deep.  There has been a small recovery in price this morning in Asia and Europe, but at the time of writing the gold price still remains a few dollars below the $1,800 level.

Equities have been the principal beneficiaries of the latest price moves, although they are now off tgheir peaks in some parts of the world.  The major U.S. stock indexes recorded new highs with the markets conveniently forgetting that the U.S. economy has, over the year to date, recorded the worst collapse since the Great Depression.  Some companies may never recover from the virus impact, but the overall market has been buoyed up by some specific sectors – particularly the tech stocks – that have benefited from people staying at, and working from, home during the pandemic.  In our opinion this demonstrates an enormously short-sighted vision from investors and equities markets may all come crashing down once the true impact of the COVID-19 virus, and attempts to control it, are truly realised.  After all, the U.S. – the main global economic driving force - seems to be recording well over 150,000 new virus cases a day and well over 1,000 new deaths associated with it per day.  On some days there have been well over 1.500 COVID- related deaths recorded.  The virus impact is far from over yet.

The latest Murenbeeld Gold Monitor newsletter commentary, penned by Chantelle Schieven in Martin Murenbeeld’s absence, points to much of this and that the weekly gold price drop was the second highest weekly fall this year – the first was in early March when gold fell back over $100 over a week and, like this time around, also breached the 200-day moving average to the downside.  But Schieven also points out that the yellow metal fully rebounded, and more, from this fall within two weeks.  While not actually forecasting that the same would happen again, the implication was there – and one should note that the Murenbeeld team’s conservative approach to gold price forecasting has consistently provided some of the most accurate price projections for some years now.

So, we feel that the gold investor should not panic sell.  Some commentators reckon that the gold bull market remains intact despite the latest sharp falls and that the yellow metal will still regain the $2,000 level and beyond – but probably not until next year.  The speed of this may well depend on what kind of stimulus package the incoming Biden administration in the U.S. can push through Congress.  We suspect that the extremely hostile divide in the U.S. political system may ease a little once the new administration takes office and there may thus be more of a bipartisan approach to legislative measures, although this may prove to be wishful thinking.

Overall we would thus suggest precious metals investors should stay with gold for the time being.  They might also want to look at platinum where the latest analysis suggests improving fundamentals and prospects – but that will be the subject of another forthcoming article I am putting together.

01 Dec 2020 | Categories: Gold

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