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LAWRIE WILLIAMS: Where’s gold going next? Will silver keep up?

Last week certainly provided some mixed messages for gold.  It opened the week at what could be described at a fairly depressed level below the $1,800 mark, appeared to be picking up nicely mid-week, but then got taken down a few dollars on Friday and opened a litt;e lower again today in Europe.  However, it has still just managed to stay above $1,800 so far, giving us some hope that it may rise again in the current week, and perhaps test the $1.850 level again.

Silver – hotly tipped to progress faster than gold given lingering doubts on the real supply/demand situation – actually performed worse than gold. The ‘devil’s metal’ certainly seems to be living up to its reputation!  It ended the week well below the $26 psychological barrier, while the gold:silver ratio rose (signifying silver underperforming its yellow sibling) to over 70 for the first time since February, thus yet again confounding the silver bulls.

Some might say that both gold and silver prices are subject to price manipulation with silver suffering more than gold.  Given all financial markets are probably subject to manipulation to some extent by those market participants who may depend on such activity for financial gain, we wouldn’t be too surprised if the silver market is not an exception, but this is not always one-way traffic.  Prices can be driven higher by dubious market moves too, as we saw back in 1980 when the Hunt Brothers attempted to corner the silver market and the price was driven up to around $50 an ounce.  We doubt that silver investors cried ‘foul’ when prices moved in their favour, although perhaps did do so when the metal price came crashing back down in succeeding months!

As has often been the case, precious metal prices may be driven by interpretations by analysts of data releases, despite some of this being extremely suspect itself.  Governments have an annoying habit of moving the data goalposts from time to time – usually to support some aspects of their political agendas – lies, damned lies and statistics – an adage sometimes erroneously attributed to Mark Twain (who did use it, but in repeating a saying that had already been in use by others.)

The mid-week rise in the gold price seems to have followed on from some analysts’ interpretations of Fed chair Jay Powell’s ultimate report on deliberations at the late June FOMC meeting.  These musings were taken as being far less ‘hawkish’ over the likely timing of any Fed tapering than reports immediately following the meeting itself.  These had been seen as responsible for knocking the gold price back very substantially at that time.  However the gold price was driven back down again just before the weekend on the interpretation of a data set suggesting the U.S. economy was recovering faster than had previously been reckoned.

Be that as it may, we, alongside the latest predictions from highly rated gold analysts, Murenbeeld & Co in Canada, see a number of bullish factors which give us faith in gold’s likely price performance over the remainder of the year and beyond.  The potentially bullish factors, according to the Murenbeeld consultancy, include the following:

  • Global debt levels to remain at record highs and will rise further; Rising debt levels will keep real interest rates low almost indefinitely.
  • The US dollar remains seriously overvalued; It will/must inevitably decline .
  • Inflation will reappear; The post-COVID recovery is already seen to be pushing inflation upwards.
  • Central banks will likely remain accommodative; Central banks are mostly focused on a return to pre-COVID employment levels.
  • Mine supply will begin to contract (peak gold); Output interruptions on account of the COVID pandemic have already mostly occurred and should not affect the general decline moving forwards.
  • Consumer demand in China and India will improve; India and China account for probably at least 50% of global consumer demand.

There are some potentially bearish factors too.  These could include:

  • The US dollar continuing to rise; Other central bank policies are also very stimulative and the dollar could retain its safe-haven status when crises hit.
  • Real interest rates commence rising; The return to some “normalcy” after the COVID crisis, together with inflation, could force the Fed and other central banks to “taper” aggressively.
  • Central banks may reduce their balance sheets; A shift to Volcker-like policies on the back of inflation will push normal yields sharply higher - and risk a new recession … before central banks back off

As can be seen the assessed bullish factors would seem to outweigh the bearish ones and we would concur with this analysis.

We are probably slightly more positive on the likely performance of the gold price moving forward than the consultancy, which tends to be ultra conservative in its outlook.  For example it doesn’t see the average gold price exceeding $2,000 until Q3 next year, although we would also point out that these are average prices, which does not preclude a $2,000 spot price being reached a little earlier.  Our own current best guess is that gold could reach $1,975 before the end of the current year (see Revised gold, silver and pgm price forecasts for end-2021) and perhaps the $2,000 level early in 2022.

19 Jul 2021 | Categories: Gold, Silver, Bitcoin

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