LAWRIE WILLIAMS: No certain direction for gold, silver or equities post Labor Day – yet!

We’ve now had a week for U.S. markets to settle down following the Labor Day holiday weekend, and while gold and silver are virtually unchanged, and general equities have fallen back, it is still too early to say whether we are yet seeing any definitive trend emerging.  We have postulated here that American holiday weekends often seem to be followed by major changes in market direction and we also pointed out the remarkable parallels with the commencement of the 1929/30 Wall Street crash which really got under way after Labor Day in 1920, but so far our direst fears have proved unfounded, although there is still plenty of time for them to come about.

When U.S. markets re-opened on Tuesday it did look then that some of our worst fears were indeed beginning to happen.  All three major U.S. equity indexes fell back between 3 and 5 percent, but they all recovered about half these losses on the Wednesday.  The indexes fell again on Thursday, but again the Dow and the S&P 500 recovered some of that ground on Friday, although the previously high flying NASDAQ continued to fall, but not that significantly.  So far it is thus too early to tell whether this year’s Labor Day has foreshadowed a major change in direction for U.S. equities so we will have to wait for next week, and beyond, to see if any further signs of a crash continue.  There is bound to be some uncertainty, though, as the U.S. Presidential election draws ever closer and the COVID-19 virus effects continue to impact the economy and the U.S. mortality rate continues to rise at a rate which will have President Trump worried, given its potential effects on voter sentiment.

The major precious metals were volatile during the past week too, but ended it at largely similar levels to their pre-Labor Day weekend close.  Gold, which tends to lead the way, was taken down to the low $1,900s on a couple of occasions, but always bounced back quickly but then had trouble advancing back beyond $1,950 which is providing something of a resistance point on the upside.  Gold closed the week at $1,940.10, an almost identical level to its closing level ahead of the Labor Day weekend.  Likewise silver also saw its ups and downs between $27.40 on the high side and a low of around $26.10. with its upside resistance for the most part at $27.  It ended the week at $26.74, around 18cents lower than the previous week’s close.

In a recent article published here at the beginning of the current month (See: Watch gold and buy silver), we recognised that gold is the true driver of the precious metals market.  However, silver’s higher volatility means that its likely percentage gains would be the greater in a rising gold price scenario.  Silver investment does carry the higher risk though as, as well as its tendency to rise faster than gold when the latter is in a rising market phase.  However, it also falls faster and further if gold does not perform as expected.

Gold bullion thus always remains the safer investment choice, but silver is potentially the bigger gainer in percentage terms.  But both are probably better choices than the currently overvalued general equities sector which has been showing recent strength with the U.S. economy being in the throes of one of the biggest downturns ever.  Equities do look vulnerable, while we do see the prospects for gold as more positive and this should drag silver up with it, with the latter’s better leverage probably leading to enhanced gains.  Certainly their performance year to date in U.S. dollar terms, with gold up around 28% and silver a massive 50% has been far better so far than equities, with the Dow down 4%, the S&P 500 up 2.6% and the best stock performer so far this year, the NASDAQ, with its focus on tech stocks, up 19.4%.  We still see all the equities indexes as vulnerable, while gold and silver could still have some way to run.  As we have also pointed out before, should precious metals continue to rise, then the best investment gains could well be made in carefully selected gold and silver mining stocks.

 

 

12 Sep 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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