LAWRIE WILLIAMS: Gold takes a run at $1,800. Silver over $18
The gold price at the beginning of the week had seemed to be consolidating above a new low of $1,760, and loath to break out above around $1.780 which means it had been trading for a couple of days within a fairly tight range. Seeming attempts to knock the price back below $1,760 had appeared to have been faltering, but its tendency to try and break out upwards and attack $1,800 also had proved to be unsuccessful so far - but for how long? This morning it got mighty close to so doing and we would not be at all surprised to see the $1,800 level breached in the very near future – perhaps even today.There seems to be resistance at $1,790, but if this breached we could see a new plus $1,800 trend developing. In the futures market for August gold is already trading above this level.
U.S. and European demand looks to be remaining strong and is currently driving the market, as has been the case ever since the Asian and Middle Eastern influence on demand has been waning under the coronavirus effects. This is evident from the strong continuing flows into the American and European gold ETFs - cumulatively at new record levels - and in particular in the record deposits into the biggest gold ETF of all, GLD. This even seems to be countering the fall in central bank buying, since Russia has, perhaps temporarily, ceased to buy gold in favour of allowing its gold miners to sell their gold on the strong global markets. (According to the latest estimates from specialist precious metals consultancy, Metals Focus, Russia has moved into second place among global gold mining nations last year, and if current trends continue could even become the world’s largest new mined gold producer some time in the next few years.)
It is also worth noting that the silver ETFs have also been seeing some absolutely enormous inflows as gold’s less costly sibling has again breached the $18 level and the Gold:Silver ratio (GSR) has come back a few notches. This morning the GSR was in the low 97s – still a historically high level (high is bad for silver) but now well below the around 124 level it spiked to only a few weeks ago. Silver may be regaining some of its lustre, but it still has a long way to go if it is to reverse the market’s adverse rating of its prospects, given its primary demand is industrial, a sector which has been hit by the COVID-19 pandemic. But certainly, of late, the silver investor has seen better gains in percentage terms than their gold counterpart, but both precious metals, as noted, have been seeing healthy price rises.
General equities remain mixed in their performance, but we still reckon that the signs that the coronavirus pandemic will be much longer-lived than the markets had been realising will keep stocks on a downward trend – perhaps until well into 2021, or even longer. There is a very apparent global recession in progress and although this has been mitigated by central bank largesse, once the continuing adverse effects on corporate earning become apparent, which will start to happen within the next couple of months, equities will likely turn down sharply.
On the other hand, the flood of liquidity into the markets will continue to be beneficial for gold and silver – and perhaps even more so for the gold and silver miners which will be seeing a big uptick in profitability. Gold and silver, and their associated stocks, thus probably the best way of protecting one’s wealth against an economic downturn yet to reach its nadir.