Gold/Silver: This party is just getting started

November 21, 2020

New York (Nov 21)  Gold faced a tough week as waves of liquidation occurred, with many participants from hedge funds to managed funds giving the precious metal the cold shoulder. Unfortunately, silver also saw the pressure while its sister metals copper and platinum took off like a rocket and left everyone else behind. The good news is that weakness coincides with a bullish seasonal trade setup in the second half of December that could spill over into a highly inflationary environment in 2021.

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So why did so many people throw in the towel this week on gold and silver? Well, I picked up the phone and reached out to some of my colleagues, and they mainly gave me the same responses. "They believe with a rollout of Covid-19 vaccines; the global economy will recover faster, curbing the appeal for Government bonds; therefore, pushing yields higher and chasing riskier assets." What occurred from that narrative was the outflows from gold-backed exchange-traded funds spiked significantly, leaving their holdings near the July lows when gold fell over $200/oz in just a few sessions.

I have to say that I do not blame them; however, I will predict that they eventually come crawling back into the market at much higher levels. They forget that policymakers will provide additional fiscal and monetary support, in return pushing inflation expectations much higher.

They also forgot that the U.S. dollar would most likely fall another 5-10% against its currency peers, leaving the Euro/USD at 1.25. They also forgot about the pledged Green spending plans in China, Europe, and the U.S., along with its impact on the price of silver. So if the long-only party cleared out and I am left with just a few gold/silver buyers at these lower levels, so be it. I love buying things on sale!


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