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LAWRIE WILLIAMS: Gold and silver on a tear: Gold powers through $2,000 and silver $26

There currently seems to be no stopping the gold bull.  Some thought the $2,000 psychological level would be a significant resistance point.  Yesterday the yellow metal seemingly breached that point with  ease – and in the U.S. markets too which had often proved to be a sticking point in the past – and the price seems to be accelerating upwards in initial trading today.  While I had predicted $2,000 gold this year, this has occurred rather quicker than I had expected.

Silver too seems to be soaring and, in percentage terms, is rising faster than gold, perhaps justifying the forecasts of the silver bulls.  With the metal price comfortably over $26 an ounce, and rising, the Gold:Silver ratio (GSR) has come down to the 76s as I write having been at the frankly ridiculous level of over 120 only a few short weeks ago.  I’ve been somewhat sceptical about silver’s rising price prospects recently, given that some 60% of the metal’s demand is classified as industrial and the  whole world seems to be in a recession, but I seem to be being being proved wrong for having my doubts by the hour!

So what next?  The out and out precious metals bulls see $5,000 gold, or even double that, on the horizon but then they have been predicting that for years.  The even more bullish silver followers are looking to the metal  regaining its near $50 high levels achieved back in 1980, when the Hunt Brothers got close to cornering the market, and then again in the silver euphoria of early 2011, but be warned – on each of thyose occasions the metal was brought crashing down again extremely rapidly.  Will it be third time lucky?  The price still has a long way to go to reach $50, but it is certainly generating the kind of momentum which could take it there. 

This time too there is something of a game-changer evident in that the biggest silver short of all, JP Morgan, has according to long term silver analyst, Ted Butler, who knows a thing or two about silver and its markets, reduced its short position to at, or near, zero.  JP Morgan also has, again according to Butler, amassed an enormous silver bullion hoard in the meantime and is thus poised to benefit hugely from any runup in the silver price.  The megabank has also, Butler reports, reduced its gold shorts to near zero too.  The moral -  don’t try and bet against the world’s biggest, and most successful banker!

As I noted in my previous article this week: An Excellent Week And Month For Gold And Silver, that most conservative of gold commentators, albeit bullish on the metal for now, Martin Murenbeeld noted in one of his most recent Gold Monitor newsletters “Everything is lining up favorably for gold just now; the dollar is weakening, the TIPS yield has hit an all-time low, and the S&P 500 is giving more cause for investors to consider gold”. 

To this we’d add the following:  A seemingly ever-present ramping up of geopolitical tensions between the world’s two largest economies; lower gold output from a number of mines due to coronavirus-related mine shutdowns and safety concerns as being seen in the latest set of quarterly results from the gold mining companies; continuing huge flows of gold (and even more so for silver) into the world’s precious metals ETFs; a general equities sector which looks ripe for collapse and continuing demand for gold from the world’s central banks, albeit perhaps at a lower level than in 2019  General equities still seem to be moving higher despite the massive global recession, and thereby overdue for a crash which could boost gold’s safe haven appeal.  The list of assumed positives seems to be almost endless at the moment. 

Thus both gold and silver look set fair for further increases. Perhaps through to the U.S. Labor Day holiday at the beginning of September, and maybe beyond.  Major U.S. holidays sometimes signal a change in sentiment, so beware!  There is also the possibility that gold and silver are seen to have moved too far, too fast and there could be a degree of profit taking and a consequent correction, but overall the outlook gold and silver prices currently continues to be a positive one.

05 Aug 2020 | Categories: Gold, Silver

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