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This Year’s Bull Run In Precious Metals Accelerates

By James Picerno, Director of Analytics


Spot prices for gold hit a record high this past week amid rising coronavirus cases and trade tensions with China, as well as the expectation of more stimulus from central banks and governments. Meanwhile, gains for several under-the-radar corners of the precious and base metals markets are drawing wider attention as buying heats up. Although year-to-date gains aren’t uniformly positive for all corners of the metals market, recent trading action suggests momentum is building for the precious metals market.


Some analysts say that an increase in demand from the broader investment world is driving the rally. “The reason I believe that might have happened is one, there’s talk of scarcity, but two, the millennials, people that have put money into the US equity markets that are in their thirties and forties, realize they need a safe haven asset in case there is a bubble,” says Gary Wagner, editor of TheGoldForecast.com.


The growing appetite for gold this year, according to one analyst, is linked to renewed concerns of fiscal and monetary excess. As central banks and governments around the world ramp up stimulus to offset the coronavirus crisis, goldbugs say that the case for a hard-metal haven is strengthening.


“The basic logic has to do with the introduction of further fiscal stimulus… in the European Union, and we’re talking again about further fiscal stimulus in the United States,” says DailyFx currency strategist Ilya Spivak ”Interest rates are not really expected to go higher, and the likely response is seen as inflation.”


Another school of thought advises that gold’s main driver is the ongoing descent of real (inflation-adjusted) interest rates into negative territory. As The Capital Spectator pointed out in late-June, the slide in real yields tends to support higher gold prices.

The falling US dollar is another bullish factor for gold. Historically, the metal and the greenback exhibit a negative correlation and so the dollar’s slide – US Dollar Index is down 1.5% this year – is bullish for gold.


Palladium (PALL) and copper (CPER) are also posting year-to-date gains, although mildly so compared with gold and silver. Nonetheless, the concurrent rise of gold, silver and copper is unusual, says The Economist. “An uncertain and uneven recovery explains their skyward leap.”


Meanwhile silver has also enjoyed a very strong upsurge. “Silver finally graduated from being poor man’s gold,” advises George Gero, managing director at RBC Wealth Management.


Although copper’s been rallying since April, aluminum and other base metals have yet to join the party, as evidenced by the divergence ETF benchmarks tracking precious and base metals. Invesco DB Precious Metals (DBP), which holds gold and silver, is ahead by 24.7% in 2020. By contrast, Invesco DB Base Metals (DBB) - a portfolio of copper, aluminum and zinc futures - has slumped 2.7% so far this year.


(An earlier version of this article was originally posted on The Capital Spectator on July 24, 2020.)

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