Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
This week investors are witnessing a historic move in gold prices. The precious metal finally broke above a longstanding overhead resistance level to reach new all-time highs.
On Thursday, gold closed at $2,170 per ounce – its highest level since…well, since records have been kept.
As of this Friday recording, gold checks in at $2,203 an ounce on the heels of a 5.2% advance on the week – its best week in nearly six months. Silver shows a weekly gain of 5.9% to bring spot prices to $24.70 an ounce. Platinum is up 3.0% to trade at $926. And finally, palladium is putting in a 6.7% gain this week to come in at $1,061 per ounce.
For now, the white metals are playing catch-up to gold, and are certainly taking a backseat to the yellow metal, as its historic price move commands headlines.
Of course, gold’s spot quote in terms of U.S. dollars is largely a reflection of the currency’s steadily declining purchasing power. Plenty of other assets are also zooming to new nominal records, including stocks and cryptocurrencies.
The question for investors is which assets will hold value, or gain value, in real terms going forward.
The stock market tends to outpace inflation over the long run. However, buying an S&P 500 index fund at the wrong time could mean it will take years or even decades for buy-and-hold investors to see a real positive return on investment.
The period from 2000 to 2010 was a lost decade for equity investors. The S&P 500 failed to deliver a positive nominal return over those years – let alone gain enough to beat inflation. And the 1966 to1982 period was an extended lost decade as high inflation inflicted devastating real losses on Wall Street.
That same inflation that peaked in the late 1970s helped propel gold and silver into epic bull markets.
Few investors today own any bullion at all for inflation protection. Most are dangerously overexposed to stocks, bonds, and other Wall Street assets.
Even bullish equity analysts admit that stocks are looking overextended here and due for at least something of a correction.
Precious metals markets are nearly the opposite of overextended. They are vastly under-owned by the investing public.
In recent months, assets held by gold-tracking exchange-traded products have shrunk while retail bullion buying has slowed. Premiums have come down across the board in the process.
But gold’s breakout to new highs is likely to draw in new buyers who had previously sat on the sidelines and don’t want to miss out on the bull market. It will also trigger momentum trading algorithms in futures markets with buy signals.
Gold has risen thus far largely on the strength of demand from Asia and global central banks. China has added to its gold reserves for 16 consecutive months. The People's Bank of China gobbled up 390,000 troy ounces of the monetary metal last month alone. The Chinese central bank now holds more than 2,200 tons of gold and is showing no signs of slowing down on its purchases.
Central banks generally don’t accumulate silver or other metals as monetary reserves. That partially explains why gold has outperformed the white metals over the past few years.
While gold has traditionally served as the money of kings, silver has served as the money of the masses. It is far more practical to be used in circulating coinage. Silver dimes, quarters, half dollars, and dollars can be more readily deployed for everyday purchases than far more valuable gold coins of any size or denomination.
Silver bullion coins, rounds, and bars are also more accessible to investors with limited budgets.
Gold’s push to new highs should boost broader interest in the metals space. And once silver gets some buying momentum behind it, its spot price can move more rapidly than gold’s.
In a precious metals bull market, silver stands to ultimately gain much more than gold in percentage terms – both because silver is a tighter, more thinly traded, and naturally more volatile market, and because its price is currently deeply discounted versus gold.
Silver prices would have to double from here just to match gold’s feat of making a new high. From there, a silver bull market could accelerate to much higher highs.
Those who would like to seize the opportunity to invest heavily in physical silver while prices remain depressed have many options. Of course, it’s always a good idea to start with some coins, rounds, and bars in various sizes as an essential foundation and for potential use in barter transactions.
This has been Mike Gleason with Money Metals Exchange, thanks for listening and have a wonderful weekend everybody.
About the author
