Gold and silver prices continue to push higher in reaction to further rounds of stimulus money both here in the US and in Europe.
Spot gold prices jumped $24.50 yesterday to hit $1,840.40 an ounce, the highest price for gold since September 2011. The price of silver increased $1.34 per ounce to settle at a 6-year high of $21.46 per ounce. Both precious metals moved higher as the dollar slid 0.5% yesterday.
During an interview with Fox Business, George Gero, managing director at RBC Global Wealth Management and a member of the COMEX board of directors, said yesterday’s jump was due to another round of money printing in Europe. They mentioned this as the European Union approved a $2.06 trillion spending plan. This step aims to help offset the economic slowdown caused by the coronavirus pandemic.
Here in the US, Congress is working on the framework for another stimulus bill. This will add to the $3 trillion that’s already been printed as the country struggles to recover from the economic shutdown.
Metals as a Store of Value
Investors have now turned to precious metals as a store of value. They do so to offset all the money printing that has gone on across the globe.
Yields have plunged as the Federal Reserve has cut interest rates to near-zero. It also announced an open-ended asset purchase plan and two programs to buy bonds. One program relates to the open market. They need the other one to purchase bonds directly from the issuing companies.
James O’Rourke, a commodities economist at research firm Capital Economics, says he expects real yields to “remain low” and sees gold ending the year at $1,900 an ounce. He also expects real yields to remain “elevated over the next couple of years.”
Cause for Concern?
The move higher in gold prices is also causing some concerns. Many have started to doubt the ability of some banks to settle their contracts. This creates a bit of a panic in the markets.
During an appearance on Fox Business, host Stuart Varney asked Fosterville South Exploration CEO Bryan Slusarchuk about 20 million ounces of gold that was just delivered to New York vaults.
Slusarchuk said some of the price action in gold is from traders that are looking to hedge their positions. However, a larger part of the price increase is a supply disruption. This happens while getting the gold from the London market to here in the US.
“Remember that traders use COMEX futures in order to hedge against their exposure to the London gold market. This is a win-win for everyone involved, but it relies on getting physical gold from storage points in London to the USA for settlement. Now there’s been a lot of disruptions to that recently and it’s caused chaos. It’s caused a gap in pricing and it’s caused some traders to worry about an inability to settle contracts.”
He added, “Individuals all over the world are worried about getting their hands of physical gold. So there’s out there looking for gold coins that they can put in safety deposit boxes, that they can hold at home for that matter. They are worried about the difference between paper gold or promises and physical gold. We’ve seen countries worried about physical gold. Countries are trying to repatriate their gold supply. Now for the first time, we’ve seen what happens when traders at banks get nervous about the ability to take physical delivery.”
Market Performance of Silver
For all the attention paid to gold prices lately, silver has actually gained the most since precious metals bottomed in March.
“Silver has finally come into its own and it’s no longer poor man’s gold,” Gero said.
“Silver has been a misunderstood component of the reopening because the industrial part that held it back for months is now in its back, propelling it forward,” Gero added.
He expects silver to move as high as $22 by year-end and the gold/silver ratio falling to around 80.