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LAWRIE WILLIAMS: Gold, silver, PGMs surge higher, but brought back down again

Precious metals all started the week on a high note, and equities also appeared stronger as coronavirus incidences in most of the major Western economies looked as though they could be past their peak.  Infection rates appear to be moving lower, as do virus-related deaths, although figures still remain worrying in the worst-affected countries – notably in the U.S., Russia, Spain and the UK, with Brazil, Mexico and some other Latin American nations coming up fast.  By the end of today, for example, Brazil will likely overtake the UK in the numbers of confirmed cases of COVID-19, while the mayor of the nation’s largest city, Sao Paulo, reports that its hospital system is being overrun.  We suspect that the number of deaths in many nations is being hugely under-reported and is almost certainly several degrees higher than the current reported global total of around 317,000 deaths, as countries with inadequate health systems, and consequent lack of reporting capabilities, are gradually overrun.

Even so, there are moves afoot in many countries to ease their lockdown restrictions, but in a cautious and gradual manner, but the populations of many of these remain nervous with fears that the lockdown easing could lead to a second surge in infections.  This suggests that a good proportion of their populations may choose to ignore the easing of restrictions and remain in an at least voluntary semi-lockdown situation.  Thus it may take considerably longer for life to return to pre-virus levels, if indeed it ever does for some years, which suggests that some of the stock market euphoria, and consequent rising equity prices, could be a shortlived phenomenon. 

Virtually all economic data remains depressing and is likely to remain so for months, if not years, to come and the oft-predicted hopes for a V shaped market recovery pattern seem more and more likely to be dashed.  We definitely think today’s equity rises, perhaps because there were renewed reports that a vaccine might be near, are again hugely over-optimistic.  Economic data seems to be ever worsening and when Q2 figures come out they will be dire.

Precious metals at last had seemed to be making a strong upwards move, with all showing substantial early day gains once markets opened after the weekend.  However they were not allowed to stay at these more elevated levels, no doubt given the size of some of the big short positions in the futures markets.  In the end gold even closed below its weekend level. Although silver and the PGMs did move up a little, but ended the day off their high points.  We were particularly pleased to see that silver picked up nicely, although the gold-silver ratio still remains at over 100 which is still a historically high level.  Silver may well have been a little oversold and we still urge some caution, but it could be a bargain even after the latest big percentage rise.

PGMs also picked up this morning.  There may be some supply issues for these but their markets will have been decimated by the huge fall-off in car and truck sales.  It is not thought that there will be a massive rapid resurgence in renewed demand in these sectors as one suspects capital expense programmes will be put on hold as people and companies remain cautious after the massive falls in employment and business activity and move towards conserving cash resources.  We would thus remain nervous about the prospects for PGMs as their markets are almost wholly industrial and in sectors which have been particularly hard hit by the reductions in activity.  Johnson Matthey was thus not prepared to come up with any price forecasts in its latest analysis of the market, in saying that both supply and demand are currently being hit due to the COVID-19 virus.  JM did note a resurgence in platinum ETFs which is somewhat distorting the supply/demand balance.

Talking of ETFs, there have been continuing high levels of gold going into the global ETF sector which continues to suggest that the big money is still gold supportive.  Last week too there was an enormous (almost 8.4 million ounces) silver deposit into the SLV ETF which preceded the big silver price move at the end of the week and early today.  Coincidence?

18 May 2020 | Categories: Gold, Silver

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