A precious metals price drop could give investors a near-term chance to buy gold and silver at bargain prices compared to just several weeks ago.
The opportunity could be fleeting as the price of gold rose $32, or 1.80%, on Dec. 1 to reach $1,811.00 per ounce, as silver surged $1.12 per ounce, or 4.94%, to hit $23.78 on the same day. The price jumps show that the recent pullback in gold and silver may be short-lived due to the following factors.
They include a recent wave of news about promising final-stage test results to develop safe and effective COVID-19 vaccines, President-elect Joe Biden announcing plans to nominate former Fed Chair Janet Yellen as Treasury Secretary and the Republicans likely keeping control of the Senate after two special elections on Jan. 5 in Georgia. However, the calm that typically holds back precious metals could give way to the reality of a sluggish U.S. economy, the continuing failure of Congress to pass a federal stimulus package and a U.S. unemployment rate of 6.9% that is more than double the 3.5% of last February, before the COVID-19 crisis disrupted America.
Bank of America forecasts that as the global economy opens up from COVID-19 restrictions, relief will come to restaurants, bars and stores that have been required by politicians to curb customer capacity and sometimes cut their hours of operation. At the same time, gold will face “more challenges,” the investment bank indicated.
As a result, it will be “tricky” for gold to reach $3,000 an ounce, or 65.65% above current levels, but ongoing fiscal and monetary stimulus should push the yellow metal past $2,000 per ounce, or a modest 10.34% above current levels, according to Bank of America.
A Precious Metals Price Drop May Give Silver More Room to Rise than Gold
Since silver has industrial uses, it is not as much of a hedge against economic chaos as gold. Of course, silver’s price can climb as demand grows for the white metal from industry and investors alike.
“Silver is our preferred play on rising investment in solar panels,” Bank of America concluded in a recent research report about metals and mining.
Key factors for 2021 include the expected rollout of COVID-19 vaccines, increased opening of the U.S. economy and plans by President-elect Biden and the Democrats who control the U.S. House of Representatives to “tackle climate change,” Bank of America predicted. Such developments would be bullish for copper and industrial metals, but increase headwinds on gold, the research report forecast.
For many investors, buying shares of gold or silver stocks or funds is as much risk as they want to take in the up-and-down metals market.
Maryland-based Asset Dealer Does Not Fear a Precious Metals Price Drop
Contrary to Bank of America’s view of further progress toward an economic reopening, governors in California, Maryland and many other states cite rising COVID-19 cases and deaths for tightening COVID-19 restrictions, said Rich Checkan, president and chief operating officer of Asset Strategies International, a full-service tangible asset dealer in Rockville, Maryland. That stark reality should lift precious metals pricing, he added.
President-elect Biden has “fully endorsed” scaling back activity, which no doubt will “kill another bunch of businesses” that barely survived previous shutdowns, Checkan said.
“Gold dipped below $1,800 per ounce on thin holiday trading and euphoria over vaccines, but things are locking down… not opening up,” Checkan said. “Ask yourself what has changed over the past week fundamentally for gold to drop $100 per ounce.”
Checkan suggested that investors ask themselves the following questions:
- Are we 10 years into this bull market?
- Is gold two to three times the previous bull market high of $1,921?
- Is the Gold/Silver Ratio down between 35 to 50?
- Are interest rates rising to high single-digit levels?
- Are you getting gold and silver tips from your Uber driver?
- Are the U.S. and the world all of a sudden socially and politically calm?
- Is the U.S. Dollar Index above 95 and climbing?
“Since I have ‘No’s’ for all of the above, I see this as a bull market dip and a clear buying opportunity,” Checkan said.
Rich Checkan, president of Asset Strategies International
Money Manager Kramer Says She Likes Two Funds Amid Precious Metals Price Drop
“Gold tends to outperform when the global economy is under stress,” said Hilary Kramer, host of a national radio program, “Millionaire Maker,” and head of the GameChangers and Value Authority advisory services. “We were bullish on gold for much of 2020 but now, even in inflationary environments, the white precious metals have the edge for a very simple reason: industrial applications mean silver and platinum get consumed faster as the economy heats up. With vaccines on the horizon, that seems to be where we’re headed.”
Indeed, the United Kingdom approved a COVID-19 vaccine for emergency use on Dec. 2 from Pfizer Inc. (NYSE:PFE), a New York City-based multinational pharmaceutical company, and its partner BioNTech. Pfizer already has requested Emergency Use Authorization from the Food and Drug Administration to begin providing its vaccine to high-risk health care providers and caregivers in the United States and a regulatory nod could come soon.
Market forecasters last year expected 2020 to become a strong year for silver due to the metal’s rising industrial use in the automotive and telecommunications industries where demand is climbing faster than supply, Kramer continued. The pandemic delayed the expected surge in silver, but now industry is stockpiling the white metal, she added.
“I think that’s a good sign for silver,” Kramer said. “Environmental applications would only accelerate consumption and give miners a motive to expand production.”
For investors, “pure plays” on silver are notoriously scarce because most of the metal coming to the market is a byproduct of larger-scale industrial mining, Kramer counseled. Investors can start gaining exposure to the precious white metal by purchasing shares in iShares Silver Trust (NYSE:SLV) as a trading opportunity or in Aberdeen Standard Physical Silver (NYSE:SIVR) for exposure to the metal itself, she added.
Chart courtesy of www.stockcharts.com
Chart courtesy of www.stockcharts.com
“I wouldn’t hold the physical metal as part of a normal portfolio… gold is still a more cost-effective hedge against long-term inflation and political upheaval,” said Kramer, who also heads the IPO Edge trading service that seeks out companies before they pursue initial public offerings (IPOs) and recommends the ones she expects to excel.
Precious Metals Price Drop Surprises Skousen But He Is Reluctant to Sell Gold
One of the “surprising changes” since the Nov, 3 presidential election has been the selloff in gold and silver, even in the face of a declining dollar, said Mark Skousen, who heads the Forecasts & Strategies investment newsletter, as well as the Home Run Trader, TNT Trader, Five Star Trader and Fast Money Alert trading services.
However, the recent precious metals price drop makes it difficult for investors and advisors to predict how soon they may rise again, Skousen said.
“Gold, silver and mining stocks could rally at any time, so I’m reluctant to sell,” Skousen wrote to his Forecasts & Strategies subscribers on Nov. 30.
The retreat may prove to be fleeting, similar to what occurred in the early 1980s when gold and silver entered a bear market, but mining stocks recovered and hit new highs, Skousen suggested.
Precious Metals Price Drop Goes Far Enough to Trigger Sell Signal Used by Woods
The Gold Fund Composite (GFC) used by Jim Woods in his Successful Investing newsletter to determine when to buy and sell the precious yellow metal fell below its key 125-day moving average on Oct. 30 to signal a “Sell” in gold. On that day, Woods recommended the sale of positions in the iShares MSCI Global Gold Miners ETF (NASDAQ:RING), SPDR Gold Shares (NYSE:GLD) and Direxion Daily Gold Miners Index Bull 2X Shares (NYSE:NUGT).
“We captured nice gains in these funds and the Gold Plan worked quite well, getting us out of these gold and gold mining funds with substantial, double-digit-percentage wins while also sidestepping the volatility we’ve witnessed in gold and particularly gold mining stocks since our Sell,” Woods wrote to his subscribers in the December 2020 issue of Successful Investing.
As of Dec. 2, Woods, who also leads the Intelligence Report investment newsletter and the Bullseye Stock Trader advisory service, still was monitoring the GFC to determine when it will be safe for his subscribers to resume taking positions in gold.
Paul Dykewicz interviews Jim Woods before the COVID-19 social distancing restrictions.
Pension Fund Chairman Still Likes Gold Fund, Despite Pullback in Price
“The Fed clearly wants inflation to rise considerably higher than recent levels,” wrote Bob Carlson in the December 2020 issue of his Retirement Watch investment newsletter.
“I’m not betting against the Fed,” said Carlson, who also serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “That’s why I’ve recommended inflation hedges in the portfolios.”
Carlson’s preferred way to profit from the Fed policy for the past couple of years has been to recommend that his subscribers own iShares Gold Trust (NYSE:IAU). He increased his recommended holding in IAU earlier in 2020 and is watching the price of gold to determine any new moves.
Chart courtesy of www.stockcharts.com
“This is the best way for an investor to own gold,” Carlson said. “The exchange-traded fund (ETF) is easy to trade and usually carries the lowest fees of similar ways to buy gold.”
Hedge funds and other short-term traders tend to prefer other gold ETFs, so IAU’s price is less likely to be disrupted when the faster traders make major portfolio changes, Carlson added.
Pension fund Chairman Bob Carlson answers questions from Paul Dykewicz in an interview before social distancing became the norm after the COVID-19 outbreak.
COVID-19 Remains a Big Factor for Investors, but a Vaccine Could Help Restore Normalcy
The COVID-19 pandemic not only inflicted economic fallout and huge job cuts but led to a new surge in cases recently that included the infection of President Trump and his hospitalization Friday, Oct. 2, until Monday, Oct. 5. The overall weekly hospitalization rate is at its highest point in the pandemic, with steep increases in individuals aged 65 years and older, according to the Centers for Disease Control and Prevention (CDC).
COVID-19 cases have totaled 13,709,452 and led to 270,481 deaths in the United States, along with 63,758,885 cases and 1,478,045 deaths worldwide, as of Dec. 1, according to Johns Hopkins University. America has the dubious distinction of suffering the most cases and deaths of any nation.
The precious metals stocks and funds to buy amid COVID-19 allow investors to purchase them near recent lows and have a chance to profit in the months ahead. The encouraging news about a vaccine and a relief rally partly due to the likelihood of Republicans keeping control of the U.S. Senate to stop potential out-of-control spending by the Democrats seems to have had a short-term negative effect on precious metals that came at just the right time for those seeking pre-Christmas bargains.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.