I don’t generally comment on the markets unless I feel we’ve reached a critical point. My last communication with regards to the state of the market was back in September 2019 when I said that I believed we were entering the early stages of a precious metals bull market. Gold was trading at $1538 at the time. Just last week, we touched a seven year high for gold, and today we’re back to $1530 following a dramatic series of trading sessions, not only for the metals, but also for the global equity markets.
So, what’s going on? Where are the metals headed next?
At times like this, when things appear uncertain, I like to look at historical data for guidance. The most recent financial crisis took place in 2008, causing similar carnage in the marketplace. Gold reacted exactly the same way back in '08; initially declining sharply in value before going on a tear and reaching new record highs later in the cycle. The chart below highlights the fact that gold dropped by over 25% during the early stages of the 2008 financial crisis, only to skyrocket over 140% thereafter.
Rest assured, retail investors are buying A LOT of physical metal right now. The US Mint reported this week that silver Eagle sales in the first 10 days of March were 300% higher than for the entire month of February. We’ve seen similar increased demand at SWP the past few weeks. In fact, suppliers are already warning retailers to expect longer delivery times and are widening their spreads; both are classic indications of extremely high demand.
The cause for the price drops the last few trading sessions is related to the markets desperately seeking liquidity; investors need access to cash to cover their margin calls. Funds need cash to satisfy redemption requests. Many are forced to sell their metal positions to access cash in a pinch. Again, we saw the same behavior back in 2008 when gold dipped hard before taking off for a 2-year run.
Past performance points in the direction of optimism for the precious metals. My belief is that we remain firmly entrenched in a precious metals bull market, only now, we are entering the next phase (call it Phase II). We may see some continued downside for the metals in the very near term, as the markets continue to reconcile, but I have no doubt the upside we saw from 2008-2011 will once again be demonstrated as investors flock to gold as a safe haven. Silver will follow.
I’d like to leave you with the calming words of a long-time industry colleague of mine, Mr. David Morgan. David has been covering the metals for as long as I can remember and has seen this all before. I spoke to him a week ago and the core message of this audio interview rings true. Listen here and please enjoy your weekend.
Interview with David Morgan: https://swpcayman.info/Morgan