Precious Metals Are Sky-Rocketing, But Will It Last?
Precious metals are surging and many people want to know how we got here... and how long this party is going to last...
Gold has broken above a key number of $1,900 this morning, and silver
continues to surge, approaching $23.00. Gold is now just over $20 away from
its all time high, which is $1921.18. The question on many people’s mind,
especially potential buyers, is whether this will continue. Here are some
factors to look at on how and why we got here and going forward.
Is stimulus really painless? In the face of the pandemic, governments around the world have unleashed a very significant amount of cash into their respective economies, in the form of unemployment benefits and business grants/loans. Much of modern economic theory postulates that money creation is the right of government and it can do so with little consequence. This is true as long as faith remains in the fiat currency and inflation is kept at a target level using policy tools. Today the U.S. dollar, as measured by the Bloomberg Dollar Index, fell to its lowest point since January. We can also see in the chart below that since March the dollar has weakened considerably vs. gold but has strengthened vs. other fiat currencies. We may be reaching a tipping point in which there is simply too much cash sloshing around in the system, making the potential for runaway inflation real. Gold and silver are the primary way to preserve purchasing power against a falling currency.

U.S. Dollar vs. Gold (Source: Bloomberg)
Following on from the above point, a huge increase in the money supply puts
pressure on interest rates, to where we now have a situation where $14.9
trillion worth of sovereign bonds yield a negative interest rate. Spot gold
has closely tracked the global aggregate negative yielding debt market
value and it has also very closely tracked the U.S. 10-year Treasury
inverse yield (spot gold increasing as yield falls.)
Gold supply chain issues. Covid-19 put considerable strain on the gold
supply chain. Gold mines around the world halted production, either
voluntarily or via government order, and travel restrictions both limiting
the supply of gold in its early stages. Refineries were then shut down for
the same reasons. This created a shortage of metal in the major physical
markets right when demand was starting to surge. This created near-record
high premiums for both forward futures contracts and product, such as coins
and bars. One of the key elements to solve is to figure out how much of
spot price increase is because of these supply constraints, and if gold
spot will contract once full supply is restored.

Download the Greysheet app for access to pricing, news, events and your subscriptions.
Subscribe Now.

Subscribe to The Greysheet for the industry's most respected pricing and to read more articles just like this.
Author: Patrick Ian Perez

Patrick Ian Perez began as a full time numismatist in June of 2008. For six years he owned and operated a retail brick and mortar coin shop in southern California. He joined the Coin Dealer Newsletter in August of 2014 and was promoted to Editor in June 2015. In the ensuing years with CDN, he became Vice President of Content & Development, managing the monthly periodical publications and data and pricing projects. With the acquisition of Whitman Brands, Patrick now serves as Chief Publishing Officer, helping our great team to produce hobby-leading resources.
In addition to United States coins, his numismatic interests include world paper money, world coins with an emphasis on Mexico and Germany, and numismatic literature. Patrick has been also published in the Journal of the International Bank Note Society (IBNS).
Related Stories (powered by Greysheet News)
View all news
One of the best ways to gauge the market is to measure how aggressive dealers have been in their wholesale buying.

July is always one of the quieter months on the numismatic calendar, as vacations and rest and relaxation take a little priority.

Dramatic swings both ways, but mostly in the upward direction, have commanded the headlines.
Please sign in or register to leave a comment.
Your identity will be restricted to first name/last initial, or a user ID you create.
Comment
Comments