LAWRIE WILLIAMS: Physical gold and silver making their move?

It’s a funny old world!  Today gold, silver and pgm prices appear to be soaring, perhaps not before time, but global equities are also rising again too, although we still feels this seeming recovery will be shortlived.  U.S. equities tend to set the pace and given that at the current rate of virus spread the U.S. may well become the nation recording the highest number of virus cases of all – higher than China’s reported total – by the end of this week, that could set off another round of U.S. equity price falls once this becomes apparent.  Our guess at the order of the top 10 national coronavirus confirmed instances by the end of the current week, based on the rates of increase in reported cases, is as follows with both the U.S. and Italy moving above China, and Spain not far behind:

  1. USA.
  2. Italy
  3. China
  4. Spain
  5. Germany
  6. France
  7. Iran
  8. Switzerland
  9. UK
  10. S. Korea

France may move above Germany, as the latter is currently reporting a flattening in virus case growth.  It will be interesting to review the figures again at the weekend and see how accurate this league table is by then.  China and South Korea in particular are both reporting a substantial downturn in new virus cases which does suggest that the strict measures being taken worldwide may be beginning to halt the virus spread. 

If the huge significance of the U.S. outbreak level is confirmed we could see yet another big equities downturn on Wall Street.  The U.S. figure looks likely to exceed 50,000 confirmed infections by the end of today and if that doesn’t put a dampener on equities gains we’re not sure what will!

All the precious metals have seen big price upturns today, but in our view gold is the big standout and at the time of writing is back to the high levels it had only achieved a week or so ago before being brought down sharply.  However  the gold price seems to be hugely volatile with apparently engineered $60-70 or more takedowns being rapidly reversed, and vice versa. The apparent non-availability of physical gold and silver seems to be driving the market at present and if that causes futures market participants to ask for delivery, rather than just roll their positions over as is usually the case, it could be a whole new ball-game with a huge squeeze on probably non-available supplies which could lead to massive price spikes.

As for the other precious metals the whole complex has been lifted by the gold price pickups, but the gold:silver ratio as I write is still at a high 119 suggesting silver is still behaving relatively poorly vis-a-vis gold.  Even so its percentage rise will have been very beneficial to silver investors who may have bought when the price fell below $12.  The silver price according to kitco.com is currently in the $13.60s.

Pgms have been sucked up as well, along with the gold price, but we remain sceptical about their longer term performance, particularly palladium even though this has seen a big price pick-up so far today.  Platinum is perhaps a better longer term bet as it tends to make moves more commensurate with the gold price.  Palladium is altogether more volatile and more dependent on the state of the automobile market which currently appears to be hugely diminished globally for the time being.  The metal price is being buoyed up by perhaps better fundamentals at the moment but these could diminish sharply if motor manufacturing demand continues to fade.  People aren’t buying while they are confined to their homes and their earnings are at risk!

All the precious metals though could yet come under pressure due to margin calls by those who have been sucked into buying equities with borrowed money.  Optimistic investors never seem to take the lessons from the past seriously.  The Covid-19 coronavirus effects are far from played out yet.  Things could still get worse before they get better.  If they do that’s bad for equities, but perhaps more positive for precious metals, particularly gold.

 

24 Mar 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).

e: lawrie.williams@sharpspixley.com