Market Insights

Precious Metals Bull Run—the Sky’s the Limit

Gold Alliance disclaimer

The speed at which gold broke above $2,000/oz and silver reached $28.54/oz was head-spinning for many people—other than you, our readers, who are following the fundamentals of the precious metals market. This was no surprise. We have known for years a precious metals bull run was forming. I have a bet made in 2018, publicly available, with a Facebook follower, that gold will hit $2,100 by 2021. Back then, gold was trading for $1,300, so I feel good about this bet.

For the last few months, we have been writing about this wave as it has been building, and here it is now, in full glory. But now that it has started, don’t think it will be over soon. This particular bull run was unleashed by the pandemic’s effects on the economy into what I believe will be a historically powerful bull run, which will outdo the one we had in the 70s. Precious metals bull runs last several years and only end when mom and pop speculators start piling in, and you start hearing people, such as your Uber driver, tell you that metals prices will never stop rising and that he doubled his money in 12 months, etc… For now, “The prices of gold, silver… still know no bounds,” says Commerzbank analyst Carsten Fritsch.

Silver outperforms gold during precious metals bull runs

Since the start of our current bull run in mid-July, gold has gained approximately $250, and silver has soared 45%. Followers of the gold/silver ratio will notice that it has dropped to 74 as a result of silver’s price run, its lowest level in more than three years but still far far away from its historic low. For people new to this, looking at it from the sidelines, it seems odd that silver outperformed gold during these recent price movements. However, as we explained a few weeks ago in preparation to the massive price movement we recently saw, it always does so during precious metals bull runs.

I wish you could hear or read the comments some of our stunned and overjoyed clients make when they realized how their portfolios in silver and gold performed during these few months, and some of the emotional emails we are getting about the “providence” related to the timing of their investment—a shout-out to C. Bishop.

Short-term consolidation before we continue the climb

For those of you trying to time this market, mining stocks losing ground on Thursday showed that we’ll see a short-term correction and consolidation before additional gains are made… But for most of our clients, who are retirement savers and not day traders, remember this: we do have a bull run to complete, and many analysts, banks like Bank of America and Citibank, and numerous hedge funds predict more gains as the coronavirus crisis—and in particular the historical money printing and currency debasement—will have investors seek out the safety and stability of physical precious metals. Bank of America, for instance, has increased its forecast for gold and says the precious metal could reach $3,000/oz by the end of 2021.

Gold and silver face no immediate barriers

Taking out the $2,000 an ounce barrier for gold means investors must change their reference points. Remember how Dow’s 20,000-point ceiling seemed unattainable a decade ago? So did gold reaching $2,000. Gold has a lot more room to grow.

Where are gold and silver prices headed?

To the many reasons for the precious metals’ historic bull run, add the record-low bond yields. Bond investors—who love security and return on investment (“yield”)—have no reason today to buy bonds because yields are historically low and the dollar, the underlying currency they will be paid with when the bond matures is debased and losing value. They may have an incentive to move into precious metals. If that happens, and just a portion of a $100 Trillion bond market, allocates to the $7.5 Trillion gold market, you will see gold and silver prices at unimaginable heights.

To show you that this is not theory or wishful thinking by a precious metals industry insider, I can point to hedge fund managers such as Patrick Armstrong, CIO of Plurimi Wealth LLP. After reducing their holdings of bonds, Armstrong’s firm now holds 7.5% of its balanced portfolios in gold, which is a record for the company. A mere five years ago, Armstrong was shorting bullion when it was valued at $1.100—just above half its price today.

“The reason I want to hold gold is because the future is just going to be a continuation of what’s happening now: more money printing,” he said.

After 2008, when the Fed lowered the interest rate to 0% and added over $4.5 trillion to the money supply via money printing and asset purchases, gold price went up close to 3 times and silver price went up close to 5 times. This time, the interest rate has again been lowered to 0%, and more than $5.6 trillion have been added to the money supply with more stimulus coming ($1-$2 Trillion), creating the largest debasement of the US dollar in history. Do you think the outcome will be different this time? If so, you’ll agree with me that it does seem we just started the journey to sky-high gold and silver prices.

May you be healthy and safe during these trying times.