Silver has already proven its capacity to surprise to the upside…
Gold has been making headlines in recent days, as its price skyrocketed close to $1,700, a rise that most analysts have attributed to the spread of the coronavirus. The fears over its economic impact have sent global stock markets tumbling and, as is usually and reliably the case, panicked investors rushed to the safe haven of gold, en masse, cause a surge in demand. While the spike is indeed noteworthy and while it does, once again, confirm the fact that gold remains a dependable store of value and an excellent hedge in times of crisis, the real opportunity for precious metals investors at this moment is nowhere to be found in mainstream headlines and superficial market news coverage.
Overlooked and undervalued
Gold’s spectacular rise presents a dilemma from a strategic investment point of view. This recent jump to higher price levels could signal a long-term uptrend, a much stronger and more robust continuation of the upwards trajectory we’ve seen over the past few months. It could, however, also have some undue anxiety and an overreaction to the worrying virus-related headlines built into it, in which case, we could expect a reasonable retraction once the dust settles. Of course, in either case, for the long-term investor, physical gold remains a key element in their portfolio regardless of short-term price fluctuations.
Nevertheless, while the price gains of gold monopolized mainstream attention, it has become easy to miss other opportunities in precious metals. Both silver and platinum are now presenting very interesting buying opportunities, with a positive outlook that is very well supported by fundamental factors at play. They might have been left behind by gold in terms of a price spike so far, but that only means that their upside potential is still ahead of them.
Silver has already proven its capacity to surprise to the upside. After being stuck between $14,5-$16,4 for almost a year and after hitting a bottom of $14,4 last June, the metal made an impressive, roaring comeback, reaching $19,7 in September of last year. It has been trading sideways between $17 and $19 in recent months, in what looks like a consolidation with plenty of room and potential to jump higher once more. And there are many good reasons to support such a scenario. For one thing, silver does tend to trail its “big brother”, gold, and the performance of the yellow metal is usually mirrored in silver with some delay. Thus, the fact that silver has not yet shared the recent strong gains of gold is actually good news for investors.
Platinum also presents a very attractive option for precious metals investors to consider. After falling for 8 years an annual average basis, the metal now has some stellar prospects ahead, as it saw a significant spike in investment interest over the last year that is still on its way up. According to the latest PGM Market Report released in February 2020 by Johnson Matthey, “The platinum market swung into deficit in 2019, as a resurgence in ETF buying lifted physical investment demand to a record 1.13 million ounces.”, while “general improvement in market sentiment over the past year” contributed in supporting prices above $900 per ounce, a significant increase from $800 at the start of last year. What is also very important to remember is that the rarity of platinum is a key factor that can hardly be overstated. In fact, it is 30 times rarer than gold, and if all the platinum that has ever been mined was to be melted and poured into an Olympic-sized pool, it would barely reach your ankles. Its demand is also very well supported, as it has many industrial uses, especially in the automotive sector.
Fundamental support and long-term prospects
Silver, platinum and gold, are all likely headed for a new bull market that has arguably already began in precious metals. The coronavirus panic might have been the trigger for it, and its impact, as it becomes more concretely understood, could indeed support it, however, we must keep in mind that the disease was just the “cherry on top” of all the fundamental, economic and geopolitical pressures that set up the stage for it a long time ago.
It is clear that a recession has been in the pipeline for quite some time now and central bankers all over the world are trying their very best to avert it. Of course, their very best is not going to be good enough, especially as they are all doubting down on cures that have been proven to be worse than the disease. A massive return to the monetary easing path is by now a fact of life, as we see expansionary policies making a decisive comeback from the ECB, the Bank of Japan, the Fed and the People’s Bank of China. On a fiscal level, extreme government spending is once again being aggressively pushed as the solution to all our problems, while central bankers themselves directly call on governments to “do more” to support their own inflationary policies. All the while, debt levels are boiling over on a national level, in the corporate world, and even in households, in most major economies. At the same time, analysts and “experts” still obsess over stock market performance, celebrating every new high, as if it actually reflects the state of the real economy. They use this debt-fueled mirage of out-of-control asset price inflation to justify their naive optimism over an eternal bull market.
This clearly unsustainable “everything bubble” is now reaching a tipping point, which is bound to vindicate conservative and responsible investors that have been patient throughout this Wall Street party, all financed with borrowed money that cannot be paid back. We already see the cracks in the massive wave of downgrades to junk debt, in the rise in default rates and in the steady accelerating rise in precious metals demand. While it would be impossible to pinpoint the exact moment in time when the dominoes will really start falling, what we can tell for sure is that they will. And it makes little difference whether it is this virus scare that triggers the inevitable avalanche or the next threat that sends equity investors running for the exits. In any case, the only really prudent and time-tested defense at this stage is found in physical precious metals, stored outside the banking system and in a stable, predictable jurisdiction, like Switzerland.
That being said, it is important to focus on the signals and not the noise. If someone already owns enough gold as their insurance, but is thinking about adding more metals on top of it, white metals such as silver and platinum definitely make sense. However, the practicalities of the purchase and the storage and the appropriate set up are of tremendous importance and can make a real difference: If you want to buy and hold white metals, you must keep in mind that in most jurisdictions in the Eurozone could be subject to VAT. Therefore, it is important to consult a reputable advisor, to help you buy and store in a compliant way that affords you the flexibility to pay VAT only in the case of a physical pick-up, but not when trading.
Claudio Grass, Hünenberg See, Switzerland