LAWRIE WILLIAMS: What gives with gold and silver prices?
It won’t have escaped reader attention that gold and silver prices slipped back sharply at the end of last week and earlier this. As tends to be usual when big corrections like those we have been seeing occur, the price moves tend to be overdone and we have seen a partial recovery in prices with around half the falls regained. We certainly won’t be too surprised if both gold and silver end up back where they were immediately before what has been described as a flash crash, but the time taken for this to happen is a little less certain. Thus we anticipate a full correction back to the $1,800 level to take place in the short to medium term, but what happens thereafter is still open to question.
We have gone on record as suggesting that portents are positive for precious metals, but the price vulnerabilities demonstrated by the recent price action may be a dampening factor in the weeks and months ahead. We had already downgraded our year end price forecast and the $2,000 level we had been confidently predicting early in the year now looks to be well out of sight for the moment. However, given the volatility in the sector, things could change again towards the year end, particularly if some supportive data, or a black swan event seen as positive for gold, should occur.
Silver, despite a host of supportive comment, mostly from disillusioned silver bulls, has fared even worse than its yellow sibling as is shown by the Gold:Silver Ratio rising to over 75 – it was sitting at around 68 only a few weeks ago. At the beginning of the year we were assuming that silver would outperform gold, with the latter rising. In the event gold has fallen back and silver has underperformed even more so - quite substantially in fact.
Nonetheless we still anticipate gold being buoyed up by geo-economic factors in the longer term and silver prices will likely follow to a greater or lesser extent. Despite vaccine take-up and increasing availability in the so-called Third World, the COVID-19 virus is still very much with us and imay even be regaining lost ground in the U.S. and Europe – particularly among those sections of the community reluctant to be immunised for whatever reason. Disinformation and anti-vax conspiracy theories seem to be responsible for some of this. This is bound to adversely affect the speed of the economic recovery in those countries so affected.
Rising inflation is definitely also having an impact in many nations. The reluctance of the Central Banks in these same countries to try and control runaway inflation by raising interest rates for fear of derailing of such economic recovery they may be seeing is keeping real interest rates comfortably in negative territory. Negative interest rates are generally seen as a positive for the gold price, Gold and silver are non-interest generating assets, which tends to be one of the arguments used against investment in these precious metals at other times. Ergo negative interest rates, which lead to currency debasement, are seen as a positive for them in making them more attractive investment assets,
Data releases on economic recovery and falling unemployment levels, in the U.S. in particular, seem to continue to generate knee-jerk negative reactions to precious metals prices. Some observers reckon that such data releases are seized upon by the precious metals bears to help drive prices down. Thus much seems to be dependent on the assumed economic recovery in the U.S. But as pointed out above apparent growth in COVID infections – the latest figures put the new infection rate in the U.S. well ahead of the rest of anywhere else in the world, and rising - could derail this positive sentiment (See: https://www.worldometers.info/coronavirus/ for the latest global COVID-19 infection figures). The investment world would seem in a wishful-thinking phase re. the coronavirus seeing an end to infections as vaccine rollouts advance, but the virus will continue to affect economic recovery for a long time to come before anything like economic normality will return. Sooner, or later, the investment world will recognise this and then equities will be in the firing line and gold in particular may gain a new lease of life.