Anyone that’s been a reader of mine for any length of time knows that I’m a big believer in precious metals. The name alone tells you something, “precious” being the key. A quick look in the dictionary defines precious this way: adjective. of high price or great value; very valuable or costly: precious metals; highly esteemed for some spiritual, nonmaterial, or moral quality: precious memories. dear; beloved: a precious child; affectedly or excessively delicate, refined, or nice: precious manners.
Obviously, our interest is in the very first description. “Very valuable” and that’s exactly what Gold and Silver are. So, for the past 45 years I’ve had a love affair with the stuff. In fact, I started life as a jeweler, working with Gold, platinum, and silver for years.
So, my fascination with the stuff isn’t purely financial. I am still mesmerized by the beauty and the luster of it. 95% of the people have never held a 10 ounce bar of either silver or gold, and when they do, they’re astonished at how “heavy” it is. Yes, it’s really remarkable stuff.
However, obviously I’m not the first person to marvel at these metals. Gold and silver have been important means of adornment and currency for thousands of years. Powerful empires like Ancient Rome to Imperial Spain couldn’t mine enough of it.
Silver coins became the unit of account in many important currencies: the Greek Drachma; the Roman Denarius, the Islamic Dirham and the Spanish dólar.
In fact, it was the popularity of that Spanish dólar, with its uniformity of dimensions, that pushed Alexander Hamilton to create the US dollar.
India has had a long-standing love affair with gold. At Indian weddings, some of the brides get so much gold jewelry that it weighs them down. There are upwards of 15 million weddings every year in India. According to the World Gold Council, upwards of 50% of Indian demand for gold is destined for weddings. Gold is ingrained in the culture and a part of their belief system. Not only is it integral to weddings, gifts of gold are common for anniversaries, birthdays and religious festivals. Gold jewelry is not regarded solely as adornment. It is a store of wealth. At one time it was widely accepted that women could not own anything except for their gold jewelry. That custom still prevails outside the major cities. Gold has spanned centuries and millennia in India.
For the past several months especially, gold and silver have been making very nice gains. Well this makes sense for a variety of reasons. We’ve got this so-called global pandemic, we’ve got a crippled economy, we’ve got trade wars and extreme tensions with China, we’ve got talk from central banks considering digital currency, we’ve got countries fed up with the dollar being the world reserve currency.
In times of trouble, gold and its brother silver have always been a safe haven. When things get ugly, people have flocked to the metals for protection of wealth. So, it certainly isn’t surprising to see gold and silver moving higher right now.
So, the question is the longevity of the move. Let’s first consider silver. Silver is an odd metal because it is both an industrial metal, and a bullion and jewelry metal. Well obvious to all at this moment, the industrial side for demand, has fallen like a rock, as so many companies are halted over Covid. Shipping lanes have been disrupted, and just getting enough to continue the lowered production levels has been problematic.
However, the lowered demand, has been offset by Covid shutting down mines. As much as 66% of primary silver mine production was put on hold for about two to four weeks
Over 101 mines were still affected as of June 18, 2020. This represents about 33.52M oz. of total production at risk, and amounts to 26% of the 2020 mine production. Also helping silver is the rush by people to buy some. Along with guns and ammo, I’m hearing a LOT of newbies are buying their first metals and they’re leaning toward silver for affordability.
So, it’s my opinion that silver isn’t simply rising because gold has gone on a run streak. I think it’s the drop-in production along with the renewed surge in ordinary people buying it. Central banks do not buy silver. They let the big Wall Street banks play with that.
Central banks however DO buy gold, and tons of it. Literally. Gold, unlike silver has very little industrial use. It is primarily an investment “store of value”. While there’s a tiny bit of industrial use in some electronics, that’s not what pushed the price of gold around. The price is determined by how valuable investors think it is at any moment.
Central bank net purchases totaled 39.8 tons in May, in line with net purchases in March and April, and above the monthly average of 35t over the first four months of this year. On a y-t-d basis, IMF data shows that net purchases are now 181 tons.
The World Gold Council has this to say:
The number of central banks buying gold is expected to increase substantially this year. According to the 2020 Central Bank Gold Reserves (CBGR) survey, 20% of central banks intend to increase their gold reserves over the next 12 months, compared to just 8% of respondents in the 2019 survey. The increase is particularly notable as central bank buying has reached record levels in recent years, adding around 650 tonnes in 2019 alone.
Several of the survey’s key findings may explain the significant growth in planned gold purchases by central banks: 88% of respondents say that negative interest rates are a relevant factor for their reserve management decisions. The continuation of expansionary monetary policies due to the Covid-19 pandemic, which coincided with the fieldwork of this survey, will likely keep interest rates near zero for the foreseeable future.
Furthermore, 79% of respondents view gold’s performance during times of crisis as an important reason to hold gold, up from 59% in 2019; while 74% of respondents consider gold’s lack of default risk to be an important reason for holding the metal, up from 59% in 2019. These shifts may suggest a re-evaluation of gold’s role amidst ongoing financial and economic uncertainty, while also reflecting long-term concerns about fiscal sustainability as government stimulus is deployed to cushion the global economy.
There’s an important data point in there. “negative interest rates” are a relevant factor in their buying. THAT folks is one of the biggest reasons of all, that gold is rising.
For years on end, the highbrow Wall Street people mocked gold. “It just sit there like a pet rock” meaning it doesn’t earn you any money such as interest or a dividend. But, with the advent of negative rates, where you literally pay the bank for holding your money, Gold IS paying you to hold it. It isn’t eroding every year like dollars and negative interest accounts.
From here out, we have to consider what the globalists are going to do in the big reset. We know one’s coming, hell they’ve called it that. Just google the world economic Forum – “the Great Reset” and you can see some of the things they’re trying to do. Well, there’s some rumor that gold will once again be used as a stability factor in the next global reserve currencies.
Interestingly, the gal that just got the nod from the US Banking committee Judy Shelton, who Trump nominated to be on the Federal Reserve, is a confirmed Gold bug. The good news is that Ms. Shelton is not a technically trained academic economist, indoctrinated in the prevailing orthodoxy. She holds a doctorate in business administration from the University of Utah and has spent most of her career in the world of free-market policy think tanks, including stints at the Hoover Institute and the Atlas Network. She also writes refreshingly and articulately in favor of the gold standard, or some version of it.
Now, Central banks aren’t dumb, they’re just evil. Central banks have been gobbling up gold by the truckload for several years now. If gold doesn’t have some form of significance for the future, they would not be buying it.
So, we have central banks buying it. We have investors buying it because they aren’t thrilled with getting .58% in a 10 year treasury or worse - “negative rates.” We have people buying it because they’re afraid of buying stocks in what is without a doubt the biggest “everything” bubble ever blown. In history. And they fear a crash.
I’m on record for years saying that gold has a date with at least 3000, and silver from 70 – 100. I still believe that and hold both in bullion ( mainly coins but some bars) and I trade the miners quite often. In fact, the miners made us a ton of money in our past two “Vegas” Plays.
A Vegas play is where you go “all in” laddering options when the miners are in an uptrend. In our first one back in 2010/2011 we turned 30 grand into 1.3 million. In our second one in 2015/16 we turned 19 grand into 249 thousand.
So, what’s the outlook? While there’s always going to be speculators and even captains of industry that beat silver down ( Hey if you’re using silver in your product, you hate seeing it rise, right?) I think that it is still on track for much higher prices.
My bottom line is that I’m extremely bullish on Gold and very bullish on silver. Why not the other way around? Because Central banks don’t buy silver. If they did, I’d be more bullish on it than gold. Sure you can play with the numbers and make silver the better play, but it’s sort of gimmicky.
For instance, with Silver at 20 bucks, if it goes to 40, you can puff your chest and tell all you know that you made 100% in silver! Hurray! But the reality is, you made 20 bucks per unit. With Gold, if it were to go up 100% you’d be going from 1900 to 3800. Boom. If you bought silver at 20 and it went to 100, you’ve made a tremendous percentage gain. But you still made just 80 bucks per unit. Gold often does that in one day, the limiting factor being the price of entry.
I love them both, I own both, and I have never sold an ounce of gold from 2002 nor an ounce of silver since 2007. I believe in my price targets and will stubbornly hold through hell and high water to see if they ever get there. Just my .02 cents.