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LAWRIE WILLIAMS: Gold keeps on bouncing back; silver excelling; equities unhinged

Despite seeming attempts by the big gold and silver shorts to drive prices down, gold keeps on bouncing back and ended May on an upnote at $1,735 an ounce.  We are also seeing renewed investor interest in silver with the gold:silver ratio (GSR) coming back down to around 98 from its seemingly ridiculously high record level of around 124 only a few weeks ago.  At no stage ever had the GSR previously exceeded the 100 level except perhaps intra-day!  Today it opened higher, but as soon as it started to approach $1,750 it was brought back sharply again.  Either there is a concerted effort to keep the price under control, or there is considerable profit-taking pressure in the high $1,740s from High Frequency computerised trading systems.

In general global equities have fallen but then recovered much of their lost ground, and in our view such recoveries demonstrate undue optimism in the markets.  We suspect there are far more falls in prospect as economic data will likely get worse before it starts to get better.  U.S. equities for the most part have not performed as badly as we had anticipated, but that has to be down to the vast amount of liquidity unleashed by the U.S. Fed and Administration which seems to be finding its way through to the stock market rather than to many of those it was supposedly designed to support through the virus-related lockdowns. 

Many had thought that the Fed and Government largesse would lead to serious inflation, but the only real inflation has been in equity prices in terms of mostly diminished falls amidst some truly horrendous economic data.  Indeed the NASDAQ, which focuses on tech stocks, has actually risen around 4% year to date.  By contrast the Dow was down around 13% and the S&P 500 7%.  But we forecast that the real equities fallout is yet to come because if Q1 data was bad, Q2 figures will likely be seen to be absolutely horrendous!

The huge debt levels which have been built up by the Fed and Administration support policies will also likely come back to haunt the U.S. economy in the years ahead.  They will likely eventually cost the greenback its pre-eminent role as the world’s principal reserve currency – not immediately, but over time the dollar’s status as a safe currency is almost certain to be diminished due to the enormous debt situation that has been built up.

Despite strong volatility which has on occasion knocked gold and silver prices right back, the good precious metals investor support has been mirrored by exceedingly positive inflows into global gold and silver ETFs.  Indeed silver ETFs in particular have seen some absolutely phenomenal inflows in the past couple of weeks alone.  Silver had been appearing to be the weak link in the precious metals chain, but at long last the seeming bargain basement price of the metal has obviously been drawing investors in in some strength.

Even so, silver year to date has been very much the laggard among the precious metals and is actually still marginally lower than at the beginning of 2020, but that hides a huge recovery in the past month.  In the month of May silver was up just under 20% so those who invested in silver at the beginning of the period have seen it outperform the other principal precious metals, thus justifying, or supporting, the staggering inflows into the silver ETFs.  As an example of this, the world’s biggest silver ETF, SLV, alone took in an absolutely massive 50.44 million ounces of silver in May; perhaps the GSR should have come down even more!

To give an indication how the precious metals have performed year to date, and in May, against key equity indexes and some other key commodities, see table below:

Commodity or Index

% Change year to end-May

% change during May
















Dow Jones Industrial



S&P 500






FTSE 100









Hang Seng



Shanghai Composite



As can be seen from the above table, May has really been a topsy turvy month.  Sell in May and go away is the old adage but for Western equities markets and precious metals May has been a decidedly positive month despite some truly negative data which, under normal circumstances, would have certainly hit the stock markets really hard.  Investors are obviously an optimistic crowd, but our fear is that, as in 1929/30, this short term upwards bounce will be very shortlived and we could yet see the kind of equities market crash that has not been experienced in most of our lifetimes.  In the Great Depression of the 1930s, U.S. stocks lost around 80% of their value subsequent to a brief recovery at the end of 1929.

Gold and silver may offer some protection against such an equity crash scenario if we are correct.  However even the top precious metals could suffer in the short term in a really steep market collapse with investors suffering liquidity issues needing to offload even strong assets at bargain prices just to stay afloat.  We saw this happen in 2008, but gold in particular recovered rapidly and went into a bull market phase which saw it more than double in value in three years.  History does tend to repeat itself and comparisons with previous steep recessions/depressions suggest the same may happen yet again!

01 Jun 2020 | Categories: Gold, Silver

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