This week in our review:
- Sharps Pixley: Gold endures. What about silver?
- CPM Group: What is a "dead cat bounce" and why apples cannot be compared to oranges – and why an increase in the prices of gold and silver is expected
- CNA: It's not yet time to throw in the towel with Kula
Sharps Pixley: Gold endures - what about silver?
Gold is hovering around $1900, but how does silver perform alongside gold? Sharps Pixley writes on the subject: silver has not performed quite as well as gold, although the price ratio between gold and silver has come down – but not as low as it was a month ago, when it was below 70. The strong price fluctuations of silver over the past decade may have meant a tough journey, especially for those investors who got in during 2011.
The price of silver is still strongly undervalued compared to the price of gold, the magazine writes, and notes that silver has historically performed better than gold during periods of rising prices. If gold returns to the $2000 price range and above, silver has excellent chances of reaching better prices than it currently has.
According to Sharps Pixley, silver is a strong industrial metal whose applications are changing: silver was previously widely used in photography; now, the use of silver in digital imaging technology and solar energy technology applications is rapidly increasing as these fields grow. Additionally, silver is increasingly needed in medical technology due to its antibacterial properties, and consumer electronics still require a significant amount of silver.
From an investment perspective, silver is still cheap compared to gold, according to Lawrence Williams of Sharps Pixley, and this year has seen significant growth in silver ETFs. This year, silver has risen an impressive 40% if an investor got in at a price of $13 per ounce in March. From this perspective, silver has outperformed any other asset during the same period, writes Sharps Pixley. Positive price development is expected for both metals, although for silver it may not be as strong as it was during the past year.
Read full article in English/ 13.10.2020, Lawrence Williams
Cpm Group: What is a "dead cat bounce" and why apples cannot be compared to oranges - and why a rise in the prices of gold and silver is expected soon
Jeffrey Christensen discusses in a CPM Group video several factors that, according to CPM Group, are likely to drive up the prices of gold and silver in the coming weeks and months: The ongoing U.S. presidential election process is very likely to impact the prices of gold and silver. The COVID-19 pandemic is not easing but worsening across several continents. The economic environment continues to deteriorate, and GDPs are shrinking regardless of the corrective movement in the industry, which is also referred to as a "dead cat bounce." Economic stimulus through support packages funded by loans will continue in the U.S., as we are deep in the mud according to CPM Group, and no alternatives to stimulus are visible; in this case, investors are increasingly turning to gold and silver. In December, there is also expected to be a large-scale realization of short trading positions in gold. In addition to these factors, we will soon see typical seasonal fluctuations in precious metal prices: strong price development is usually observed at the beginning of the year. As a result of these factors, CPM Group anticipates positive developments in the prices of gold and silver in the coming months.
Christensen's second topic in the video relates to the finance industry's application of "bad mathematics," which he criticizes strongly. According to him, this has been seen abundantly in various comparison charts by well-known economists, where "apples are compared to oranges." In the field, mathematics is applied to arithmetic, according to Christensen: for example, the price development of gold is directly compared to interest rates. This is, according to Christensen, incorrect, as inflation-adjusted real prices should be compared instead of nominal prices. It would be better to compare the percentage change in gold prices relative to the percentage change in interest rates over the same period. With this real mathematics, the price of gold does not, for example, correlate at all with interest rate development, even though this is a typical claim. Therefore, caution must be exercised in interpreting various charts to avoid comparing apples to oranges.
Katsofull video in English/ 15.10.2020, Jeffrey Christensen
Cna: It's not yet time to throw in the towel with gold
Gold has been one of the best-performing assets this year, writes CNA. Although the price of gold has come down from its all-time high in August ($2000 and above), there is still potential for gold to rise, writes The Smart Investor's CEO David Kuo in an article. According to Kuo, there are signs of growing interest in the yellow metal, and he compares the price development of gold to several other assets and factors in the article.
Gold and stocks
The 24% increase in gold this year has outpaced the performance of several stock indices, but it has not yet surpassed the performance of the Nasdaq (32%). Based on this year's data, it cannot yet be concluded according to Kuo whether gold's excellent price development has come at the expense of stocks. Historically, however, investors tend to shift to safe havens like gold when they are wary of riskier investments. This, however, is not yet certain according to Kuo, especially when observing the similar price movements of the Nasdaq and gold.
Gold and dollar
What about in relation to the dollar? Gold is said to correlate negatively with the US dollar according to Kuo. The reason given is that gold is priced and traded in US dollars. Therefore, when the US dollar weakens, it can be argued that buying and holding gold becomes cheaper. From the perspective of a gold mine, more dollars are desired for each ounce of gold extracted, as the value of the dollar is lower.
This year, however, it is unclear whether the situation is the same, claims Kuo: since January 2019, the dollar index has dropped from 96.8 to 93.2, which is a 4% depreciation against a basket of currencies that includes the euro, Swiss franc, Japanese yen, and Canadian dollar. At the same time, the 48% increase in gold during this period would suggest that investors are concerned about the further decline in the value of the dollar.
Gold and interest rates
It is also assumed that the use of it correlates negatively with interest rates in the same way as with stocks and the US dollar. The reason is the opportunity costs that arise from the possibility of interest income if the money were kept in a bank. However, the central banks' decision to keep interest rates close to zero eliminates this opportunity cost. The US Fed indicated in September that interest rates would remain near zero until 2023. Interest rates from other central banks are also historically low, Kuo reports.
“There seems to be a very good correlation between the rise of the dollar and the lowering of central bank interest rates,”
Gold and inflation
Gold is claimed to be a hedge against inflation because it can help protect against the decline in the purchasing power of fiat currency, writes Kuo. This is because gold is priced in US dollars. So when the purchasing power of the dollar decreases, gold becomes more expensive, making each ounce of gold correspondingly more valuable. However, there are only slight signs of rising inflation. In fact, US inflation fell from 2.5% in January to 0.1% in May. During the same period, however, the price of gold rose significantly.
Gold and Fear
Kuo writes about the VIX index, also known as the "fear index" of the economy. This describes the volatility of the economy. When the fear factor is high, it may indicate that investors perceive stock market investments as uncertain. When it is low, they expect less fluctuation in stock prices, writes Kuo.
The escalating trade war reinforces fears of a possible recession in the USA. Growing uncertainty in the stock market may strengthen the price development of gold, as investors may seek safer investment options for their money, claims Kuo. In March, the VIX index reached its highest point (85) at the same time that COVID-19 had spread to many parts of the world; as pandemic fears intensified, the price of gold rose to historically high levels. Although the fear index has returned to its normal level (25), the price of gold has remained elevated.
How to move forward from here
According to Kuo, there is no single reason why the price of gold would reach new heights; numerous factors drive the price increase. He cites, among other things, companies' ability to recover to pre-pandemic levels and the unprecedented stimulus from central banks, which could devalue paper money—especially the dollar. There are also concerns that central banks will keep interest rates low for longer, even at the cost of controlling inflation. This dual concern of low rates and high inflation may have, according to Kuo, strengthened the positive trend in gold prices. Finally, he argues that the fear of the unknown and concern for the preservation of one's wealth has been an additional factor supporting the rise in gold prices. Kuo notes that it is unclear how long these five factors will remain unchanged; if they persist, gold is likely to rise, but if even one of these factors disappears, the price trend of gold may remain at the levels already seen.
Read full article in English/ 19.10.2020, David Kuo
This is Jalonomi's weekly review of interesting precious metal news from various sources around the world. Our goal is to provide the reader with a concise and quick-to-read overview of the news on a weekly basis. We particularly focus on news related to investment gold.
