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LAWRIE WILLIAMS: Gold and silver make partial recovery but how far can they rise?

We commented at the end of last week that gold and silver had been marked down too far too fast, while the major indicators suggested that precious metals prices should have been rising rather than falling.  Indeed gold and silver have made a partial recovery, but remain hugely below their early-August high points.  Platinum, which we felt deserved something of a re-rating, has also been performing well, moving back above the $1,000 level for the first time since October 2016, although has come back below that level in early U.S. trading today.  Year to date gold is now up around 20%, silver 33% and platinum, after a significant time below its January 2020 level is now in positive territory by close to 5% as I write.

It is U.S. markets which currently call the tune in media recognition of market advances, although global markets become increasingly relevant as the dollar index continues to fall.  We have thus seen U.S. equity advances this year so far – which we feel are incongruous given the big COVID-related downturn in the U.S. economy.  Be this as it may, the Dow is only up 3.5% and the S&P 12.6% year to date.  In other words, investing in the major precious metals will have seen a better performance than investing in the major equities markets.  Even platinum, the worst performing of the precious metals, has done better than the Dow.  However, the equities exception is the NASDAQ which has risen around 36% year to date.  Its concentration on tech stocks, which have generally performed well through the pandemic, has meant that it has been by far the best performing U.S. equity index, and, at the moment, it narrowly pips silver in terms of percentage rise year to date.

Precious metals markets in general, with the exception perhaps of platinum, were hit hard by the market euphoria that arose with the announcements of what appear to be viable vaccine developments which could promise the beginning of the end of virus-related restrictions.  But this is most probably a reaction way too soon.  None of the vaccines have yet received final clearance from the U.S. regulators and meanwhile virus infections and deaths are growing at an alarming rate – and even before the enormous travel and group mixing apparent over the Thanksgiving holiday impact can be beginning to have an effect – which could prove to be adverse in the extreme. 

According to the data I follow (worldometers.info), yesterday the U.S. recorded over 200,000 new virus cases and 2,833 virus-related deaths.  Hospitals in parts of the country are being overwhelmed.  The U.S. President’s laissez-faire attitude to the spread of virus infections, and the consequent denials of its seriousness by his more vocal supporters, has a lot to answer for.  Once the Thanksgiving-related spread figures start to kick in, the resultant effects on the U.S. economic recovery could be devastating.  Any vaccine rollout will come far too late to have any impact on these likely figures.

Once the seriousness of the latest pandemic growth statistics kicks in – and once its likely big post-Thanksgiving advance is taken into account, the U.S. economy may well see another big contraction lasting until well into the New Year.  Equities and precious metals should react accordingly – equities down and precious metals up – however investors are a fickle, and often over–optimistic bunch and this pattern will not necessarily follow!  It hasn’t so far with equities in particular rising throughout the worst hit the U.S. economy has taken since the Great Depression.  So what should happen according to economic theory may not take place in reality.  However the longer the investment public is exposed to the long term economic effects of the virus pandemic the more likely an equities crash becomes.  The only real hope for the markets, as we see it, is that prices hold up long enough for the vaccines to start having an effect.  But regardless, the very possibility of an equities market meltdown may re-boost the safe haven attributes of gold and silver in particular.  As for the pgms our views on these, which are nowadays very much industrial, rather than precious, metals these were expressed fully in our recent article Platinum’s Time For The Spotlight?.

Today precious metals were marked down once U.S. markets opened and equities seemed to be receiving yet another boost as well.  But we anticipate the precious metals fall back, and the equities push higher, may both be being overdone and would not be surprised to see the former higher and the latter pegged back by the close of the week, or early next.  We don’t think the possible growth in precious metals prices will be interrupted for too long, but will perhaps occur rather more slowly than we had been earlier anticipating. Thus while $2,000 gold and $30 silver may now be out of sight for this year, we would expect both figures will be exceeded by mid 2021.   Hold the faith!

03 Dec 2020 | Categories: Gold, Silver

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