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LAWRIE WILLIAMS: Massive gold and silver breakout on big CPI increase

Tuesday’s precious metals markets played out with gold holding on to its earlier gains, and getting close to its assessed upwards resistance level of $1,835, ending the day just short of $1,832.  However silver and palladium were unable to hold on to earlier positive movement, although platinum put on around $5. But all that changed on Wednesday when the latest Consumer Price Index figure came in hugely above expectations at a 0.9% increase and a recalculated annual projected rise of over 6%.  This suggests that inflation is running far higher than anticipated by the markets and the Federal Reserve, but not by us.  This could well prompt a more rapid decision to raise interest rates than had been envisaged in Fed Chair, Jerome Powell’s, recent post-FOMC meeting statement.

In the event, gold powered upwards through the contemplated $1,835 resistance level reaching over $1,860 at one time, while silver did even better in percentage terms reaching over $25 an ounce for the first time in 3 months, with the Gold:Silver ratio coming down to 74.25 – still rather higher than it had managed earlier in the year, but well below the kind of level it had reached only a couple of months ago.  Platinum and Palladium also rose in price, but by much smaller percentages.  Subsequent trading took prices back down part-way, but they moved higher again when markets opened in Europe today.  As I write gold is back at $1,865 and silver back above $25 again.  Whether this can be  maintained through the rest of the day remains to be seen, but it does appear to us that the latest figures suggest a gold price sea change and we could well be seeing a gold and silver price reset.

We had already assumed that U.S. inflation was likely rising faster than had been being predicted by the Fed and the mainstream media.  With the runup to Thanksgiving and Christmas, coupled with the current supply-chain issues, we suspect the North American inflation rise may get worse before it gets better.  Similar high inflation levels are also apparent all around the world – indeed they are probably even worse in Europe and China which suggests Emerging Market inflation levels will be trending even higher still.  Inflation is thus rapidly becoming a global economic problem and many economies will be less equipped than the major economies to deal with the ensuing financial difficulties for the world’s populations, leading to the potential for political unrest all around the world.

While there are likely pitfalls ahead for precious metals prices, we feel that increased traditional safe-haven demand will likely come into play.  Equities are looking nervous after an extremely strong run.  There is continuing talk of a possible equities crash, although they show little sign of this yet.  But if and when the current equities and bitcoin bubble bursts, its deflation could be severe and rapid hence the probable move into gold and silver. 

The platinum group metals (pgms) on the other hand are a bit of a different story as being almost wholly dependent on economic and industrial growth.  We have always seen palladium as being particularly vulnerable going forwards and we suspect the COP 26 outcomes may accelerate the trend towards replacement of the internal combustion engine with zero-emission alternatives happening faster than most people realise.  Most of these zero emission options do not involve palladium, but some do rely on platinum, and we are already seeing the price gap between these two most used pgms diminishing.  It will take time for price parity to come about, but the process looks inevitable as time progresses.

So where do we go from here?  We suspect silver may consolidate above $25 and gold move up to the $1,880s and maybe have a week or two attacking the $1,900 level which we suspect it may surpass before the year end.  Gold equities, which are mostly very profitable at current price levels, should have a good run – particularly those paying decent dividends, or making capital returns.  The whole atmosphere around gold and silver in particular looks as though it has become much more positive than it was only a week ago.  Things can move rapidly in these volatile times.

11 Nov 2021 | Categories: Gold, US, Platinum, Palladium, Bitcoin, FOMC

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