Summertime Sizzle for Gold and Silver / Commodities / Gold & Silver 2020

Summerdoldrums? Not for precious metals markets!

Inearly July, gold and silver eachbroke out to fresh multi-year highs. The yellow metal is within strikingdistance of new all-time highs and the headline worthy figure of $2,000/oz.

Thewhite metal, meanwhile, has a lot of catching up to do. And as it does, thegains in percentage terms could be explosive.

Silver has already packed on 60% since its March panic-selling low. Importantly, ithas shown leadership by narrowing its historically large discount to the goldprice.

Alsoshowing leadership are the precious metals miners. The notoriously volatilemining sector attracts speculators and smart-money insiders alike. It often servesas a leading indicator for the metals.

Sincebottoming in March, the HUI gold mining stock index surged over 90% into thedog days of summer. If gold miners begin to underperform or diverge negativelyfrom the gold price, that would be a warning sign for the gold market. It wouldsuggest a significant pullback is likely coming.

Sofar since the March lows for miners and precious metals, we have not seen anysuch warning signs.

Risks to Fed-Fueled Bull Markets

Ofcourse, there are always risks – both known and unknown – to any bull marketadvance. Virus risks and political risks heading into election season coulddrive renewed market volatility.

Willthe U.S. stock market be susceptible to another epic plunge by the fall?Possibly.

TheFederal Reserve and the rest of the “Plunge Protection Team” will certainly dotheir best to keep asset markets propped up. At some level, they will almostcertainly succeed. There is a strong correlation between growth rates in theFed’s balance sheet and directional moves in the S&P 500.

Thequestion is: If the Fed prevents a wave of bank failures and municipalbankruptcies while jacking the stock market up to new all-time highs, then atwhat cost?

Thereain’t no such thing as a free lunch – not even for Wall Street.

Thecosts will be paid largely by toilers in the real economy who see their costsof living go up as the real value of their wages falls. The costs will also bepaid by savers and bondholders who will earn next to nothing in interest as thereal value of their dollar denominated holdings falls.

Inflation Threatens to Heat Up

Inflationrates have the potential to surge in the months ahead, especially ifcoronavirus-depressed global economic demand recovers.

TheProducer Price Index has yet to show any broad rises in wholesale prices.

Butdisrupted supply chains for a host of commodities and manufactured products areshowing signs of stress and instability.

Consumersare feeling the pain of rising food (especially meat and dairy) costs. Pent up demandfor discretionary consumer goods could soon trigger price spikes in othercategories as well.

Asiaand Europe appear to be faring better than the U.S. in terms of limiting thespread of the virus.

Theireconomies may thus be positioned to recover more strongly.

AsU.S. COVID-19 cases continue to rise (even as the case fatality rate falls),even more state-by-state economic (re)lockdowns may occur. That means morecalls for economic bailouts and stimulus measures – which, if enacted, wouldfurther exacerbate upward pressures on deficits and money printing.

TheU.S. dollar is vulnerable to being debased – and possibly even ditched by largeforeign holders including China. A bearish outlook for the U.S. dollar impliesa bullish case for hard money – gold and silver.

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.

© 2020 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.

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.