Gold & Silver

December 12, 20222 Comments

Quick one today, folks. A reader asked me about my outlook for gold & silver. I have noted recently that I like both metals, viewing gold in particular as both an inflation hedge and a negatively correlated currency hedge (vs USD). Gold is NOT a stock market hedge. There is little relationship between gold and US stock market trend. I also like silver from the perspective of an inflation hedge. Lets take a look at the commodities themselves, and then a producer index.

Gold

What’s interesting to note on this 20-year view of gold bullion is the obvious “Cup & Handle” formation. Bullion is currently trapped in the handle part of this big-picture scenario. The range is from about $1700-$2000. Not a bad neartermed trade by itself, but the real juice will be made upon a breakout that can last (note a couple of failed spikes through $2000 that couldn’t hold).

 

Silver

Silver bullion isn’t so neat and tidy a chart as is gold bullion. The metal has been thrashing around for 2 decades in a much harder to predict pattern. That said, the recent break through $22 suggests a potential return to the last peak in the down-sloping trend. That lies near $27. Decent neartermed upside potential from here I might think. Not quite as clear for the bigger picture after that first target, though.

 

Gold/Silver producers

Probably the best followed Gold Producer Index ETF in Canada is the iShares XGD ETF. It contains gold producers and silver focused producers. Many of the stocks held, while focusing on gold production, have some exposure to silver. Beyond the 2015 markdown (when most commodities bottomed), the index has been contained to a pretty wide swinging range between about $9 & $23. The wildly swinging trend (red arrow) suggests the index is possibly moving back up to its range-high of $23. At about $6 upside potential, I’d say that’s decent – well over 20% if all goes well. It may not be a smooth ride, though. Check that volatility!

 

Conclusion

Precious metals are looking like they could be a decent area to have some exposure to, but beware that the producers are pretty violent in movements. This is not a sector for the feint of heart.

2 Comments

  • Thanks, Keith. I have small positions in PMs anticipating confirmation of bigger moves next year. I’m reading that things could get very interesting longer term for the two safest assets in the world – USD and US Treasurys. Apparently, too many governments got spanked from having their debt denominated in US dollars resulting in higher servicing costs with the rapid rise in the USD against other currencies. They’re probably also considering that borrowing rates will be higher for longer, which could lead governments to diversify away from Treasurys and the US dollar, leading to secular declines. I think the playbook for declining currencies is normally precious metals, and it looks like most fiats around the world will be losing value with successive waves of inflation for years into the future. Cryptos didn’t quite work out as the world’s reserve currencies (sorry Youtubers!).

    Looking forward to seeing you back on BNN. I guess they read my email. Merry Christmas, Mr. R!

    Reply

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