LAWRIE WILLIAMS: Gold, silver, platinum all off to flying start in 2021.
The three major precious metals, gold, silver and platinum, all got off to a flying start when Asian and European markets started trading on the first market-open day of 2021. The big question, though, is, of course, are these prices sustainable as markets settle down and when the key U.S. markets open later in the day.
Initial signs are a little ominous. Palladium, which opened positively, was rapidly brought down into negative territory in European trade, while gold, silver and platinum were off their tops as markets progressed, but then recovered a little Gold’s breakout above $1,900 and silver’s over $27, with the Gold:Silver ratio coming down to below 71, suggested further market strength, but we will have to wait and see how things develop through the remainder of the day, and beyond. We remain positive on these three precious metals in the short to medium term, but the ever-continuing pressures to control rises in the gold and silver prices in particular, could well see them brought back down again. But whether the $1,900 and $27 levels will be breached on the downside remains uncertain.
As we have pointed out beforehand, high flying gold and silver prices are seen as reflecting badly on the U.S. dollar and as a destruction of the greenback’s purchasing power. Perhaps this is not seen as being compatible with the maintenance of its position as the world’ principal reserve currency with all the benefits that brings to the U.S. in particular. Consequently there is always the suspicion that gold is the enemy of the dollar, as voiced by Paul Volcker some years ago, and it is in the best interests of global financial stability to keep price rises in the yellow metal under control. In our opinion that is why we are unlikely to see the mega gold price rises predicted by some of the out and out gold bulls. Gold will just not be allowed by the financial powers that be, to break out hugely. Nor will silver given its close perception by the investing public of a direct price relationship with its yellow sibling.
Keeping gold and silver prices under exceedingly tight control might be considered a dangerous exercise, though. Sooner or later this kind of control might be breached and the floodgates open. Thus a controlled rise in precious metals prices could be seen as a kind of safety valve so we expect gold and silver prices be allowed to rise between say around 10% and 20% year on year to keep the financial markets reasonably happy and not upset the status quo too much.
However, every now and then a major game-changer comes into the equation. The 2008 market meltdown was one such, in the aftermath of which gold and silver prices surged to new highs until they could be brought under control - which took around three years. The impact on the global economy of the COVID-19 coronavirus has been another such potential game-changer, but central banks and governments recognised this early and got their retaliation in first, aided by a perhaps over-optimistic American investing public which kept equities markets at positive levels.
Now, a new mutation of the virus, which appears to spread more easily, has appeared and this may already being upsetting the best-laid plans of governments and central banks to keep matters under control financially. If this virus strain takes hold in the U.S., which we see as inevitable given the pattern of progression of the initial virus, then we could yet see a period in the U.S., which tends to set the scene for the rest of the world, where we get yet another recurrence of the 2008 equities collapse. If this occurs – and it will take maybe another couple of months for this to become apparent, if it does, then gold and silver prices could well be brought back down with equities, but then recover far faster and go on to yet new heights.