Interesting Times for Precious Metals

Interesting times for precious metals

Interesting Times for Precious Metals

December 9, 2020
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“May you live in interesting times” is reputedly an ancient Chinese curse but is probably both apocryphal and ironic. There seems to be no confirmation of such a saying in Chinese culture – ancient or modern. Nevertheless, it does seem hugely appropriate for the current time, particularly for the likely performance of precious metals prices.

Both politically and economically, we are definitely in “interesting times,” with the U.S. economy being partly decimated by the COVID-19 pandemic. We say “partly decimated” because it has brought whole sectors of the economy to its knees but has meanwhile proven to be beneficial to some other facets of business – notably the tech industry, which has been reaping the benefits of a move to online activities by those reluctant to leave their houses or apartments, for fear of picking up the infection. A large part of the U.S. populace, though, seems reluctant to take even sensible precautions and flouts social distancing and the wearing of face coverings as a matter of political principle, apparently egged on by a president who himself seems to scorn following the advice of his medical advisers.

Currently, the U.S. Coronavirus infection and death figures are pretty horrendous – and rising. Latest statistics indicate an average of over 200,000 new infections are diagnosed per day, and again, an average of over 2,000 daily associated deaths are being recorded. Indeed, the worst is probably yet to come, as the “Thanksgiving effect” has probably not even started to kick in. Millions of Americans seemingly ignored medical guidelines against traveling and spending the big U.S. holiday with friends and family outside their households. There were reports of substantial congestion at transport hubs and all sense of distancing was seemingly abandoned. There is likely to be a resultant spike in COVID infections – and a spike in infections is inevitably followed by a big increase in hospital admissions and deaths.

The Christmas holiday period may well follow a similar pattern

True, there now appears to be an effective vaccine becoming available in the next few weeks. But even with a rapid rollout, it would seem there is little chance of this having a positive effect on virus control until perhaps the middle of 2021, assuming a substantial take-up. And with so many Americans seemingly more than happy to embrace outlandish (to an outsider, at least) conspiracy theories and a strong anti-vax movement, universal vaccine take-up is far from a foregone conclusion. So what has all this got to do with precious metals? It does now seem likely, despite President Trump’s reluctance to concede, that Joe Biden will be sworn in as president of the U.S. on January 20th next year. Where Trump has been something of a politically divisive president, it appears that Biden will be more conciliatory in tone and will try to conduct a much more bipartisan approach to government. With Trump no longer calling the tune, we suspect that some Republican senators (assuming the GOP retains control of the Senate, as seems likely) may, in the future, be disinclined to reject all Biden initiatives out of hand, and a more generous stimulus program aimed at easing the U.S. out of its virus-related economic downturn may result. The markets – both equities and precious metals – would certainly welcome this and could see positive moves as a result – while the dollar could continue its recent weakening. Both would also be positive for gold and the other precious metals.

In my own precious metals analysis, I tend to be influenced by the views of two analytical groups in particular – Murenbeeld & Co, located on Canada’s Vancouver Island, and Jeffrey Christian’s CPM Group in New York. Both are conservative in their views on the likely progress of precious metals prices, and much to the chagrin of those preaching a rapid gold price increase to $5,000 or $10,000, they have both tended to be far more accurate in their more moderate price forecasts. Both Murenbeeld and CPM are mildly positive in their gold forecasts for now. Neither sees significant increases in price ahead. They both seem to see a period of consolidation up until the year’s end and an uptick in price occurring next year, but not to what might be considered excessive levels.

At one stage this year, gold did seem to be heading for the heights, soaring above $2,050 an ounce in early August. Still, it came back down sharply – a fall exacerbated by the announcement of what appeared to be effective virus vaccine development. This latter decrease was almost undoubtedly excessive. The yellow metal has made a partial recovery over the past week, given the realization that any vaccine effect on the coronavirus spread will probably be far slower in coming about than the optimists had reckoned and suggested.

Of the other precious metals, silver tends to follow the path set by gold, although often more significantly – both up and down.

Thus, in early August, it looked as if silver could be heading for $30 an ounce and above, but it dropped back sharply to below $22 by late September. Since then, it has moved pretty much pari passu with gold and appears to have stabilized, for now, at around the $24 mark. Silver is still the best performing precious metal, year to date, with growth of around 36% since January 1st, but then its price was particularly depressed early in the year – and even more so mid-March since when it has performed considerably better than the other precious metals and most equities.

The two major platinum group metals, platinum itself and palladium, should, nowadays, be classified more as industrial metals than precious ones. They are more influenced by the state of the economy than gold and silver and by the automobile and truck sales markets, in particular, as their prime usage nowadays tends to be in exhaust emission control systems for gasoline-driven vehicles (palladium) and diesel-driven units (platinum). However, the huge current price differential between the two suggests that there’s a good chance that platinum-based catalytic converters may make inroads into the gasoline engine exhaust cleaning market. This would be a reversal of the trend of several years ago when the then much less expensive palladium largely replaced platinum as the catalytic metal of choice in the enormous global market for gasoline-driven lightweight vehicles. Platinum, though, also sees demand in the jewelry sector, will continue to fluctuate with earnings power.

We remain dubious about the medium-term prospects for general equities, though, significantly if the coronavirus pandemic incidence accelerates into the year’s end, as we fear it may. Gold mining stocks, however, are probably still heavily undervalued since the miners continue doing really well at current price levels – most mine at or around $1,000-$1,200 an ounce, so margins are still strong at $1,800 an ounce and higher.

So, we do remain generally optimistic about the prospects for the precious metals complex as a whole. We anticipate prices will rise into the end of the current year and in the first half of next year – but we do not see any spectacular increase ahead, which may disappoint some of the more ardent gold investors. As we have said before, we do not see the massive increases in gold and other precious metals prices promoted by some – at least not in the next couple of years – but we do see a slow and generally steady increase in the months ahead – at least until the COVID-19 virus spread is defeated, which may still be many months ahead.

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