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LAWRIE WILLIAMS: Precious metals very weak and equities and bitcoin volatile

We now seem to be entering a much more volatile market phase with nervous reactions apparent across the board.  No market sector seems to be immune.  We have been seeing alternate strengths and weaknesses in precious metals, equities, commodities and bitcoin.  Is this a sign that any market euphoria is coming to an end?  And if so, which sectors are likely to remain the best bets in the days, weeks and months ahead?

The writer would suggest precious metals might normally provide the best bets for so doing, but all these have been showing major signs of weakness.  Indeed they are showing a pricing pattern that seems to co-incide with the Murenbeeld & Co. rather more bearish, and least favoured, pessimistic price prediction scenario which has gold falling back into the $1,700’s over the forecast period, which has already happened.  This forecast suggests a year-end gold price of only around $1,755 – well below previous expectations.   Obviously whether this comes about is far into the future, but if precious metals prices continue to behave as they are at the moment even this rather downbeat scenario could yet prove optimistic! 

Commodities in general have also been disappointing in the past week or two, after showing some earlier positive moves, while equities and bitcoin have been up and down like a yoyo. We are definitely in somewhat unpredictable times market wise.

Perhaps we are at long last seeing the disastrous effects on most markets of the longer term economic results of the virus pandemic globally.  Market strength since the pandemic first struck has seemed to completely ignore the huge potential short, medium and long term adverse effects on global economies.  True there have been some high profile gainers due to stay-at-home elements of virus impact – notably for those companies involved in the internet, home delivery and medical sectors – but these are probably dwarfed by huge sectors of the economy which are, at best, struggling to stay afloat, and at worst have already been forced to seek bankruptcy protection, or even to close down, as a result of near-zero income coupled with ongoing overhead costs.

Much future market reaction will depend on whether we can truly see the end of the pandemic’s ill effects on national economies.  The vaccines, which have been developed in record time, are seeming to show far greater efficacy than even the most optimistic of forecasters had been predicting.  But still the medical profession is unsure how long vaccine-generated immunity might last and/or whether it will continue to be effective against the inevitable virus mutations. 

Vaccine rollouts are patchy, and there are still many countries around the world that have been unable either to secure vaccine supplies, or implement any kind of national vaccination programmes.  Until the vast majority of the global population has been immunised, and the longer term vaccine effects are proven, the virus spread cannot be considered as fully under control.  There’s a long way to go yet.

So saying, though, the vaccine effectiveness data which is coming in is hugely positive – particularly in countries like Israel, where around 94% of the population has received at least one vaccine dose. (Figures published by the New York Times on March 3rd). The Seychelles (83%), the UAE (63%) and the UK (32%) have the next highest vaccine administration figures with vaccine distribution so far highly effective and take-up high.  The first dose vaccine priority programme implemented in the UK also seems to be showing better than anticipated immunity levels.

The U.S. (24% of the population already having received their first vaccine dose), on which much depends globally, however, has also seen a separation of virus-control measures being taken seemingly on political grounds which does not necessarily bode well for virus eradication across the nation, although the proportion of the population vaccinated is now reported as the 6th highest in the world.  There does seem to be a high level of anti-vaccination sentiment there, though, which could affect overall vaccine take-up.  However, hopefully, this will diminish as global data confirms vaccine effectiveness.  The Biden administration has made vaccination a priority.

Vaccine take-up figures could see the generation of a perhaps false sense of euphoria develop among the new generation of investors, particularly in the U.S., who have largely been responsible (in theory at least) for driving equities markets ever higher.  As we have warned before, this optimistic view of the speed and size of any economic recovery may be shortlived once the true impact of the Covid-induced downturn/recession becomes apparent.  Virus effects are likely to continue perhaps well beyond the current calendar year. 

However as long as the euphoria among equity investors persists, gold in particular will likely remain out of favour – indeed it has taken another downwards dip as I write and could be heading to crash through $1,700 on the downside.  Silver, platinum and palladium are all looking weaker too, while U.S. equities are mixed with the Dow up a few points, while the S&P 500 and NASDAQ are down.  So much of market involvement is dependent on sentiment and while this remains positive there is little incentive to seek out investment in gold, in particular, and the other precious metals.  The benefits of holding safe haven assets of this kind are seen by much of the investing public as an irrelevance in current seemingly ever-rising stock prices

But should equity markets appear to waver then sentiment could change rapidly and safe havens come to the fore as investment choices yet again.  This may just be wishful thinking by the writer who still sees positivity in gold in particular, although perhaps not so much in the other precious metals, and who is convinced that at some stage we will see a huge equity market crash.  Equities and bitcoin are very much in bubble territory and we will see the bubble burst – but the big question as always is when?   Bubbles tend to continue to inflate until they burst, and when this happens the denouement tends to be extreme and rapid while the actual timing is often unpredictable.

I am ever hopeful that gold will indeed have its day – or at least serve as a wealth protector in the years to come.  Don’t give up on it yet.

03 Mar 2021 | Categories: Gold, Bitcoin

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