Gold has had a tough week as waves of selloffs have unfolded, with many participants, from hedge funds to managed funds, giving the precious metal a cold shoulder. Unfortunately, silver also saw the pressure as its sister metals copper and platinum took off like a rocket and left everyone behind. The good news is that the weakness coincides with a bullish seasonal trade setup in the second half of December that could spill over into a highly inflationary environment in 2021.
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So why have so many people thrown in the towel this week on gold and silver? Well I picked up the phone and contacted some of my coworkers, and they mostly gave me the same answers. “They believe that with the deployment of the Covid-19 vaccines; the global economy will recover faster, curbing the attractiveness of government bonds; hence, pushing yields higher and chasing riskier assets.” What happened from this account is that outflows from gold-backed exchange-traded funds rose dramatically, leaving their holdings close to July lows when gold fell more than $ 200 an ounce in just a few sessions.
I have to say I don’t blame them; however, I will predict that they will eventually come back into the market at much higher levels. They forget that policymakers will provide additional fiscal and monetary support, in turn pushing inflation expectations much higher.
They also forgot that the US dollar would most likely fall another 5-10% against its peers, leaving Euro / USD at 1.25. They also forgot about the green spending plans promised in China, Europe and the United States, and their impact on the price of silver. So if the long end alone has worn off and I only have a few gold / silver buyers left at these lower levels, so be it. I love buying things on sale!
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Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept guilt for any loss and / or damage resulting from the use of this publication.