Precious Metals Set to Keep Powering Ahead / Commodities / Gold & Silver 2020

Precious metals got off to an explosive early start to 2020 astensions between the U.S. and Iran drove safe-haven buying.

Of course, gold and silver markets will need more than ageopolitical flare up to drive a long-term bull market advance.

The question for investors is whether the fundamental picturenow looks promising or fleeting.

In our view, the fundamentals are turning in favor ofhigher gold and silver prices.

From fiscally reckless trillion-dollar deficits in Washington,to a Federal Reserve obsessed with generating higher rates of inflation, tomining supplies of gold and silver tightening, the ingredients for a big bullmarket are in place.

Fed Doubles Down on Higher Inflation

With the Fed now on pause with interest rates after havingthrice cut in 2019, it is also engaging in massive backdoor debt monetization(“not QE”). Its balance sheet will likely rise to an all-time record sometimethis spring, further cheapening the real value of the Federal Reserve Note inthe process.

Loose monetary policy should continue being supportive of higherasset prices in general.

During a press conference in late 2019, Fed Chairman JeromePowell indicated he would like to a see a significant and sustained rise ininflation before hiking rates again.

Earlier this month, John Williams, president of the New YorkFederal Reserve Bank, said the Fed should consider “doubling down” on itsinflation target – pushing consumer prices higher by reinforcing publicexpectations that the Fed will remain accommodative.

Higher inflation coupled with low interest rates couldpotentially be rocket fuel for precious metals markets.

Why Silver May Be the Metal to Own in the 2020s

One of the most remarkable technical developments of 2019 wasthe gold:silver ratio spiking to 95:1 – its highest level since the early1990s. It finished the year at 85:1.

A continued decline in the gold:silver ratio toward morehistorically normal levels would entail not only an outperformance in silver –but also likely a bull market in both gold and silver.

The last powerful decline in the gold:silver ratio from 2009 to2011 translated into silver surging up over $49/oz and gold making a recordhigh at $1,900/oz.

Silver may be the metal to watch (and own) in 2020 andbeyond. If global industrial and investment demand picks up even slightly,supply will struggle to keep pace.

In fact, silver mining supply is heading in the oppositedirection. The Silver Institute’s World Silver Survey shows production fallingat an annual rate of 2%.

Mines have been depleting their silver reserves and haven’t hadthe incentive to develop new projects given low spot prices and geologicalchallenges due to declining ore grades.

According to Katusa Research, “The average head grade hasfallen by over 50% since 2010. This is not a good situation for a miner. In aworld where input and production costs are rising yet profit per tonne of rockhas fallen by 50%, this poses serious long-term potential problems.”

Investing in a miner is always in iffy proposition, even if youdo your homework. The busts tend to outweigh the booms.

And in the case of silver miners, most are primarily in thebusiness of mining other metals (such as lead, copper, nickel, zinc, or gold) –and only mine silver as a byproduct.

The lack of a healthy primary silver mining industry can work tothe advantage of physical silver investors. It means that supply will remainconstrained in the years ahead.

Even if higher spot prices begin to make mining silver moreprofitable, the beaten and battered industry won’t have the immediate capacityto grow production to any significant degree. It will take years of rebuilding.

In the meantime, once silver breaks above overhead technicalresistance from $20-$21/oz, the path should be clear for a run toward its oldrecord high.

The Platinum Wild Card

The other metal with big upside potential in the 2020s isplatinum. It has gotten clobberedby palladium and rhodium in recent years. But the extremeprice disparity between platinum and those other two platinum group metalsmakes it a compelling alternative for automakers and other industrial users.

“Platinum had fallen out of favor among investors afterVolkswagen AG’s emissions-cheating scandal in 2015 prompted commuters to turnaway from diesel vehicles. The market has overestimated the decline in demandfor autocatalysts,” reports Bloomberg (via Mining.com)

“By 2025, about 850,000 metric tons of palladium used inautocatalysts could be substituted with platinum…”

Although downside is likely limited, platinum couldspend much of 2020 basing out before substitution kicks in to push prices muchhigher in the years ahead. Adding to the fundamental story will be a rise inthe use of fuel cells for power generation, which use platinum.

The Gold Safe Haven

As always, precious metals investors should first stake out corepositions in gold and silver. They are money, first andforemost.

Monetary demand for gold – led by central banks in Russia,China, and elsewhere – is likely to remain strong.

Even if the global economy falters and causes industrial demandfor the white metals to slip, gold buying won’t necessarily go down. It couldeven increase on a flight to safety.

Gold may not be the cheapest metal, but it is cheap relative tothe U.S. stock market. And the protection physical gold provides from the risksof financial turmoil is invaluable.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2019 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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