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Bullion Markets Catch a Breath

Gold bugs may finally be taking their summer (stay)vacation. After months of frenetic activity in the bullion markets, physical buying and selling slowed a bit last week. 

The respite, if it persists, could be welcome news for investors who have been frustrated by product scarcity and higher premiums.

The COVID-19-associated economic troubles have not been resolved, but those stories aren’t commanding the level of attention they did in recent weeks. 

Angry rioting and looting have slowed for the moment. The Fed is in between rate cuts and the next announcement of additional stimulus. And there is almost nobody left in Washington DC or the media willing to talk about multi-trillion dollar annual deficits.

The price action in precious metals has also spent a few weeks range bound after a dramatic surge in late July which captured the attention of speculators.

If the lull in activity persists, it will be welcome for investors who have been waiting for a better opportunity to buy. Mints and refiners may catch up on some of the huge backlog, and dealer inventories and premiums could fall.

What isn’t certain is just how much of a breather the bullion markets will get, as this fall promises to be eventful. 

The return of school and flu season could lead to a spike in COVID-19 and associated economic carnage. 

The Federal Reserve meets again in September. Absent another correction in stock prices, the uber-bankers are expected to stay the course at zero interest rates and massive bond purchases. 

The pattern, however, is set. Stock prices cannot maintain at these valuations without perpetual and ever greater Fed stimulus. The question is when will the last injection of monetary fuel run out. 

We consider it a matter of time before the FOMC makes the plunge into negative nominal interest rate territory or something equally extreme. Real interest rates are already well into negative territory.

The Presidential election will move markets. A Donald Trump victory will be a wild card. During his administration, bullion markets have seen both extremes. A collapse in demand following his 2016 election and, more recently, and massive surge of buying activity.

If Biden wins, it is safe to say gold bugs will continue stocking up and the metals market could see millions of new entrants.

Either way, the election is more polarizing and divisive than any in recent memory. Violent rioting is likely to be back in the headlines, regardless of the outcome.

Any meaningful reduction in either spot prices or premiums should be viewed as an opportunity to buy the physical metal. But the paper price of silver seems poised to continue moving higher regardless of any slack in the retail bullion markets. 

This week’s Market Update was authored by Money Metals Director Clint Siegner.

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