LAWRIE WILLIAMS: Gold and Silver up and down on the Powell prognosis
There was obviously something for both the bulls and the bears in U.S. Fed chair Jerome Powell’s opening speech to the virtual Jackson Hole event. The bears look as though they won the day, but the big question is will they win the war? On the basis of overnight trade in Asia and this morning’s opening in Europe, which saw precious metals prices recover lost ground, the long term effects are still open to interpretation. Certainly European activity seems to suggest that the U.S. market price falls were overdone, but it remains to be seen how the follow-on activity when U.S. markets open today will take the price.
In truth the content of the Powell statement had been pretty much predicted in advance. The Fed would relax its controls a little on inflation, with a rather vague around 2% target, in favour of moves to boost employment recovery in an attempt to kick start the U.S. economy as the virus pandemic is gradually brought under control. True the reported numbers of new infections seem to have come down from their recent peaks (this is perhaps more a factor of the number of tests being undertaken), but the reported virus death rate, as reported, remains around the highest in the world. The per capita death rate is rising daily, despite President Trump’s assertion that it is among the lowest in the world – it is not – and if it continues at the current rate could overtake most of the worst European figures within the next month or so. It is already far higher than the death rate per capita in France, Germany. The Netherlands, Switzerland, Portugal, Ireland, Austria, Denmark, Finland, Norway and Poland and is rapidly closing in on the figures for Spain, the UK and Italy – the three worst affected major European nations.
In the event gold and silver prices in itially soared on the opening remarks in Powell’s statement, but then were brought down (an engineered decline by the big shorts?) very sharply indeed as the speech continued. The high point for gold was around $1,980 and the low, only about an hour later, some $70 lower. The metal price recovered a little in afternoon trade and closed at just short of $1,929. This morning in Europe it regained the mid- $1,950s, so was showing a considerable degree of resilience. But the price remains volatile.
As for silver, the Gold:Silver Ratio was at around 71.5, meaning that the silver price had again been doing marginally better than that for gold. One needs to be a little wary here as there have been some quite large recent withdrawals from the major silver ETFs, although the big withdrawals out of SLV were reversed again yesterday. The ups and downs in the ETF figures can be something of a guide as to how the big investors see the silver price developing. However, if anything, today’s silver chart is looking stronger than that for gold, so the white metal may well be about to resume its attack on the $30 level, although still has a way to go to do so.
But, of course, all this could change when American markets open later today as these tend to set the overall precious metals prices through activity on the futures markets. There are still some big short positions in gold, and in particular in silver, so there could remain some pressure to keep gold and silver prices restrained in the short term.
Overall, though, in the light of Powell’s Jackson Hole statement and the ever-continuing pandemic effect on the U.S. economy we remain confident that the gold price will return to the $2,000 level before too long and silver will hit $30 with the Gold:Silver Ratio coming down below 70. Momentum seems as if it may be picking up again – but don’t expect a smooth ride.