We all know that an investment in Gold and Silver should not be based on making a quick return. Usually, these metals provide portfolio diversification and a hedge against currency depreciation and, importantly, against inflation.
Over the last few months, investors will have watched these metals largely tread water as the US Fed teased global markets with an expected announcement about the end of tapering while reviewing the latest inflation data. Gold, therefore, had become stuck somewhere in the middle of all of this while equity markets continued to roar ahead as corporate results maintained their upside path.
Clearly, the post-Covid uncertainties in terms of the US and global economy continue to push and pull investors in the precious metals markets. The Gold price in particular, has just not been able to sustain a breakout above $1800 per ounce leaving many investors to question whether this ceiling would be broached this year.
While some analysts believe that Gold will end the year lower, the continued fears of an extended period of inflation counter that argument. Some have sought refuge in Bitcoin yet there is a distinct lack of historical data to suggest the coin offers a measurable hedge against inflation. Instead, Bitcoin acts more like an equity stock price and can therefore be highly volatile in the process whereas Gold’s rising value tends to track inflation more closely.
In the last week, all eyes were once again on the US Fed Chair Jerome Powell to get an indication on the issue of tapering (reducing bond purchases), interest rates and inflation. Powell has been easing both the US and the World towards the beginnings of an end of tapering – and this was confirmed at the Federal Open Market Committee. But, despite the view that inflation was still temporary and that interest rates were still likely to rise moderately in the new year, fears about inflation have continued.
CURRENT POSITION
Prices have been rising in the US and all over the world. The oil price is well over $80 per barrel. In particular, there is both a shortage of workers in certain industries in the US and even in parts of Europe. Supply chain problems are also driving up prices and critically, this also means upwards pressure on wages.
The recent figures from the US Labour market showed that a relatively solid 531000 new jobs were created – but given the pressures for higher wages, the fear of more sustained inflation is once again apparent.
This is an environment in which the Gold price should gain some traction. Although an interest rate rise is likely for 2022, it is some months away and with debt across markets still in a post-Covid high, central banks really are trying to delay interest rates hikes where they can, in fear of a negative effect on their growth. In the interim, these inflationary pressures are building. This provides the backdrop for a better response from both Gold and Silver as witnessed in recent days with price movements northwards of $1800. The jury is still out as to whether Gold can breach the important $1835/7 level but it’s recent performance points to the metal continuing to be seen as an important store of value in uncertain times.
While markets have been less supportive of these metals in recent months, the macro-landscape as outlined can be conducive to better precious metals prices and investors should take this opportunity – particularly in this state of global uncertainty – to maintain and add to their positions.
