Gold and silver records, pandemic and dollar problems

28 lug 2020

Judging by the dynamics of gold and silver in recent months, all the negative generated by the global economic system because of the pandemic is incorporated not in the stock market or in the foreign exchange market, but in the precious metals markets.

In general, the fundamental background has probably never been so favorable for precious metals, especially for gold and silver.

The pandemic, which is only getting worse every week (another outbreak in China and a sharp increase in Spain, a rapid deterioration of the situation in India, etc.) forces the most cautious investors to go into cash or safe-haven assets.

Zero interest rates across all the world's leading central banks have made zero-yield assets (like gold) much more attractive than bonds (many government bonds yields are now negative).

Huge injections of money from central banks and governments create a surplus of money in the markets, which in turn acts as a reliable basis for the demand for precious metals.

The fall of the dollar in the foreign exchange market has recently been an additional factor in favor of the growth of gold and silver.
And the last thing to consider: technically, gold and silver have formed stable trend structures that stimulate buyers.

In general, it is not surprising that gold has reached the highest prices in history. It will be surprising if it does not try to hit the 2000 mark this week. Also, there is nothing strange about the 100% (!) growth of silver since March. And again, it will be strange if everything ends without attempting at least to touch 30.

Meanwhile, dollar problems are getting worse. It is beaten systematically and methodically. To explain this, analysts talk about the growth of the euro and the Japanese yen, which are pushing the dollar down. We find this explanation more than dubious. However, analysts are understandable. By and large, there have been no globally new factors for dollar sales recently (the economic decline, protests in the US, a pandemic, and even tensions with China - all this was already long before the current dollar's problems). And what is happening with the dollar from the standpoint of cause-consequences relationships is really not obvious. Especially when you consider its status as a haven asset in the foreign exchange market. So it’s a little bit too soon to bury the dollar.