Gold and Silver Finding it Tough to Break Out – But They Will

I thought the gold price might have broken out decisively into the $1,900-$1,950 range a week or so ago when it appeared to have made a strong upwards move, but it was not to be. There are too many powerful vested interests out there which seem to be set on keeping the price in check through their actions in the futures markets. Silver is likewise seeing price turbulence around the $24-$25 mark.

The current battleground for gold appears to be above and below the perhaps psychological $1,900 level. Each time the gold price falls below $1,900 it seems to bounce back up again to regain that level. The daily pattern seems to be that the price rises in European trade, but is then brought back down again when U.S. markets come on line and the COMEX futures markets tend to dominate pricing. There are too many massive short positions for both gold and silver in play on COMEX for prices to be bid up without some kind of contrary reaction.

The media is also riddled with claims from people who have ‘predicted’ major market moves, or call for huge price swings. Treat these with the contempt they deserve. Those that may have come right are virtually always just a matter of lucky timing in publication of long-held views. These claims are often used to drag investors into purchasing investments, books or advisory services of often dubious value. One should just go with the flow and probably make one’s own decisions rather than rely on viewpoints from those who may have vested interests in taking some of your hard-earned cash. There are some excellent analysts out there, and if one follows the viewpoints and moves of mega-investors you probably won’t go far wrong, but one needs to do one’s due diligence before following the advice of any third party. Many claims of stellar past performance are, in reality, so much hot air.

As I write the above I am conscious that I too am offering what purports to be investment advice, but also would point out that I do not have my own paid-for newsletter or advice service to promote and profit from, nor do I trade in precious metals or associated stocks and thus aim to make money from my own recommendations, although some of my pension fund is invested in gold stocks. That may be a strange position for one who gives what is in effect investment advice – I do not put my money where my mouth is - but offer my advice as a hopefully relatively impartial observer of the markets. I am an engineer who has worked in and written about, the mining sector – and precious metals in particular – for over 50 years. True I am generally cautiously bullish on most precious metals – except perhaps palladium – and not always right in my guidance (palladium is a good example here so far but more of my views on that metal later) but overall my basic views and recommendations have been pretty accurate, although sometimes my timing has not been the best.

So where do I think precious metals will go from here? Basically onwards and upwards, but not necessarily in a smooth continuing pattern. There will be setbacks on the way as we have seen in recent weeks, but the overall trend looks to me to be positive. In my view precious metals are much safer assets to be in than equities, as they have been for the past two or three years. For example, this year to date the gold price is up around 25%, silver up 36%, platinum down 12% and palladium up 15%. Meanwhile the Dow is down over 2%, the S&P 500 up 5% - and the NASDAQ with its tech focus has performed very positively so far this year and is up 26%. Gold and silver have thus performed better than the Dow and S&P 500 – and silver even better than the high flying NASDAQ which has done particularly well given that tech stocks have generally been beneficiaries of the Coronavirus restrictions.v

Much of the likely progress of precious metals for the remainder of the current year, and into next, may hinge on the results of the U.S. Presidential election given the dominance of the U.S. markets in setting prices. However victory by either side may well be gold-positive given the prospect of more coronavirus-related economic stimulus whoever wins. Time seems to be running out for a pre-election stimulus package which suggests that nothing much will happen until the New Year which could prove to be a dampener on precious metals prices and equities alike, although perhaps something may transpire on this front between the time of writing and publication of this article.

However we do feel that most trends appear to be gold-positive, and thereby bullish for the whole precious metals complex. We could see a gold price surge due to uncertainty as election day approaches and that will probably drag silver up with it, but not necessarily platinum and palladium as these are much more dependent on the state of industry and the economy which does not seem to be recovering in any long term discernible manner yet.

Gold is probably the key here and will be the safest investment bet. If it doesn’t perform then any setback is likely to be minimal, but silver could, in this case, fall further and faster as is its wont. Conversely a sharp rise in the gold price could see silver rise further and faster. Platinum, in the longer term may perform positively as areas like fuel cell demand increase, but we have always looked upon palladium’s long term future as being more dubious as electric vehicles eat into internal combustion engine demand and there is always the possibility of substitution by the mow much cheaper, and more plentiful, platinum in the exhaust catalyst sector, palladium’s principal demand element.

Here a Trump or Biden victory could make a big difference. Trump is more reluctant to dismiss fossil fuels while a Biden administration may prove to be more environmentally attuned. This could lead to a faster demise of the internal combustion engine and its replacement by more environmentally friendly non polluting vehicle power systems which do not require palladium. But all this would take time and may not have much impact short term, even if Biden wins the White House.

So I would still recommend putting one’s trust in gold rather than equities for wealth protection and/or capital gains as we still think it could easily revert to a $2,000 price level before long and continue to move higher, although perhaps not to the kind of headline grabbing $5,000 or $10,000 levels beloved by the more bullish commentators. We see a slower and steadier path ahead. Silver remains a potentially even more profitable choice in a rising gold price scenario, but is more of a gamble with its severe downside likelihood should gold not perform as expected.

The precious metals enthusiast may well also want to take a look at the better gold stocks – particularly those which pay dividends. Even at $1,900 gold these miners are making huge profits and most are increasing their dividend payouts which would be a bonus as if the gold price appreciates, then so too will their stock prices.