The precious metals sector of the market is now gathering pace with or without you.
The two main drivers behind the demand for gold are the demise of the fiat currencies such as the US Dollar and a gloomy economic outlook.
Both the currencies and the S&P 500 have had their day and there will be a rush for the exit.
Most importantly, the fever pitch reached in a gold bull market is like no other and boundaries will be exceeded time and time again as the panic to buy gets a grip.
There is now little doubt that the precious metals sector of the market has entered a bull phase. A cursory glance at the charts for gold, silver and the producers clearly demonstrate the acceleration in value that has already taken place, rewarding those who were bold enough to establish a position in what was once a truly unloved area for investors.
The two main drivers behind the demand for gold are the demise of the fiat currencies such as the US Dollar and a gloomy economic outlook. The maniacal way in which central bankers are trying to print their way to prosperity is mind boggling. If prosperity depended on printing money, then they could print a million dollars for each and every one of us without any adverse effect on the financial system. This is of course a preposterous course of action to take; however, the money supply is being inflated to record levels and so investors are turning to hard assets in order to protect wealth.
The markets in general enjoyed an economic expansion for around 11 years, one of the longest in history. A recession was long overdue and now it’s here, and to make matters worse, so is an awful pandemic which is also causing havoc for many businesses.
A quick look at the chart for gold shows how it has accelerated over the last twelve months from sub $1,500/Oz to trade above $2,000/Oz recently.
The demand, as evidenced by the funds that are flooding into the ETFs, will remove large amounts of the physical metal from the market. One such fund is the SPDR Gold Trust ETF (GLD) which offers an easy way to enter and exit the gold market. Its net assets currently stand at $66.99B which is 1,262 tonnes or 40.5B Oz’s of gold. The flight from fiat currencies to hard assets I can only see as gathering pace especially as funds deposited with a bank pays little to no interest. It should also be noted that this a small sector of the market and it is extremely difficult to invest large amounts of money without forcing the price much higher. And so, this suggests to me that gold will rise rapidly and could easily double to $4,000/Oz and then triple to take it to $12,000/Oz once the mania gains momentum. Some would say that this call is outrageous and an impossibility. However, gold has registered a new all-time high and could go anywhere from this point.
The supply and demand factors will play their part but that is not the main reason for making this call.
I see this market developing as follows:
Investors today are on top of changes and trends across the globe and have access 24/7 to news flow so they know that this sector is on fire. They can also be sitting on a beach and invest a $100k via the push of a button on a mobile phone, gone are the days of waiting for a stockbroker to execute your instructions. Both the currencies and the S&P 500 have had their day and there will be a rush for the exit. The precious metals sector has the momentum to attract at least a portion of those funds seeking a new home. This is a tiny sector of the market when compared to the tech sector, for instance, so any increase in demand will force prices to higher ground and will in turn garner even more coverage. Then comes the fever and there is nothing like a gold fever. It is the perfect storm that has been a long time in the making and is now unstoppable. And so, we will see the $2,000/Oz price tag disappear and it is not hard to imagine gold hitting the road towards $12,000/Oz. My target has been $10,000/Oz for some time so at that point I will be thinking about exiting, hopefully still in one piece.
Poor man’s gold is in a similar position to that of gold in that it was out of favor for some time and has of late sprung to life. The gold/silver ratio at one time flirted with 130 level; however, demand for silver has seen this ratio drop dramatically to around 78 and I suspect it will soon trade at the 60 level which would put silver at around $33.00/oz. Silver also has the added attraction of being an industrial metal and will be required for electric cars, solar panels, medical applications along with a host of other uses.
As the chart below shows, silver prices fell out of bed when the coronavirus struck and it touched the $12.00/oz level; however, it has more than doubled since then.
The Gold Bugs Index (HUI)
The producers are finally enjoying their day in the sun as the index of largely unhedged stocks depicts. The chart below shows that this index has risen from 220 to 360 over the last year, registering a gain of around 63%. As gold continues its trek north, each increment in the price goes directly to the bottom line for many of these companies. Who knows, they might even start paying a decent dividend.
Following such a dramatic increase in value one would normally expect a tad of a pullback; however, these are not normal times as we are in uncharted waters so expect the unexpected.
The demand for gold and silver is accelerating as investors purchase the physical metal and/or pile into the ETFs.
Knowledge is freely available and accessible across the globe so investors will be aware of the speed of change and able to capitalize on it.
Most importantly, the fever pitch reached in the gold bull market is like no other and boundaries will be exceeded time and time again as the panic to buy gets a grip.
Take a position while you can in the physical metal if you can get it and also in some of the PM stocks which are the rising stars of the near-term future.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Author: Bob Kirtley
Source: Seeking Alpha: Gold Likely To Double And Then Triple From Here