Thursday, July 23, 2020

Gold and Silver Markets Reflect Significant Surge in Demand - Some Reasons Why

While this blog is not investment related and does not claim any special expertise in precious metals, we do monitor these markets because they tend signal when there is a general feeling of uncertainty about economic conditions. Lately, both gold and silver have moved up more sharply in price. Silver has also now begun to "catch up" with gold as reflected in the sharply falling gold to silver ratio.

Rather than try to provide any in depth analysis, we will just list some bullet points below as potential reasons we have seen offered for the recent strong moves higher. Following that are a few links to recent articles noting what is going in these markets.


- fundamental demand  vs. supply issues - falling supply due to mine closures during the pandemic at the same time as global demand picked up for physical gold and silver

- general uncertainty surrounding the impact of the virus pandemic on the stability of the economy and financial system

- a general perception by investors that the increased monetary stimulus from global central banks in response to the virus pandemic will tend to devalue fiat currencies (the US dollar is certainly reflecting that lately). 

- the markets anticipating possible future inflation because of all the money creation

- possible tightness and/or stress in the Comex futures exchange for both gold and silver that is demanded for physical delivery. Again, reflecting tight supply vs. demand.

- a surge in retail demand for gold and silver coins that is drawing in a broader group of buyers than is the norm for these markets. See video below asking if millennials have "discovered" gold and silver.

-an increasing number of investment advisers recommending clients allocate %5 or more to gold and silver in their portfolios. As noted below, Ray Dalio was advising this a year ago. Of course, Jim Rickards who we have covered here quite a bit, has long advised a 10% allocation to precious metals.

- low real interest rates (or negative real interest rates) make gold more appealing

- some central banks around the world continue to add physical gold to their reserves

Here are a few articles and videos that talk about various aspects of what experts in these markets are seeing in these markets:

At the time of the writing of this article, spot silver is $22.51. Here is a sample of what various dealers want for a one ounce silver eagle at this same point in time. Not much available under $30. This suggests there is still a market imbalance in demand for silver eagles vs. available supply as this is a much higher premium over silver for these coins than we usually see in more normal circumstances.

Added note: Coming in the next few weeks will be an interview I did with my own daughter who is 25 years old on what she thinks about money and some monetary systems issues. She provides an interesting sample of opinion and some of her comments echo what I see quite often from millennials. After the interview article, I will post a followup article based on her comments on the issues involved. The goal of that article is to try to ask some thought provoking questions about concerns millennials have for the future. I did run this interview by some experts who told me that the interview answers were interesting and provide some useful insight into current thinking in that age group.

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