Gold prices rose steadily from July until October 31st, reaching $2,801.80 as an intraday high. That same day, silver rose sharply up to $34.69. What was behind the October surge? And will prices return to these levels soon?
A number of factors were pushing gold and silver prices higher during this time. One of the most important was the Fed’s move to lower interest rates, starting in September but well anticipated in the months before that. The Fed clearly was signaling concerns about weakening economic conditions and the potential that the U.S. economy could slide into a recession. Uncertainties about the U.S. presidential and congressional election outcomes added to the investor impulse to stock up on gold and silver at that time.
Prices peaked on October 30th, and then fell sharply. Gold dropped to an intraday low of $2,541.50 on 14 November, while silver dropped to $29.75 the same day. Prices have picked up since then.
Some observers attributed the sell-off to market convictions that a second Trump presidency and a unified Republican government would lead to stronger economic conditions, reducing investors’ perceptions that they should be adding gold and silver to their portfolios as portfolio diversifiers, currency hedges, inflation hedges, and insurance against economic, financial, and political uncertainties.
Even a superficial examination of price action over the past two weeks indicates that was not the case.
First, it was not just gold and silver, financial portfolio diversifiers, that dropped in the first two weeks of November. Oil, natural gas, aluminum, copper, platinum, palladium, and other industrial commodities fell, too. If it was a matter of economic euphoria, gold and silver might have sold off but industrial commodities would have been expected to rise.
Second, the sell off started before Election Day, when the election outcomes remained totally unclear.
Third, the sell-off in commodities prices was preceded by those sharp increases in prices in precious metals and other commodities over the previous several months.
The sell-off represented short-term profit taking. Indeed, as mentioned above, prices have recovered some lost territory in the first two trading days on this week.
The election results no doubt contributed to the round of profit taking, but it probably was secondary. While the election removed some of the largest uncertainties that have been hanging over all markets, it also provided a new set of perhaps even greater uncertainties for the markets to wrestle with.
Commodities market analysts had been expecting such a round of profit taking pushing prices lower for several weeks before prices actually dropped.
Now that the sell off and the election are behind the markets, investors are re-focusing on the myriad economic and political issues facing the world and the United States.
There remains a heightened level of uncertainty about trends, and what they mean for all assets. The Fed, ECB, Bank of England, Bundesbank, IMF, and others remain focused on recession risks, but political developments in the Russian war against Ukraine, in the Middle East, and in the South China Sea and Strait of Taiwan add to the difficulties, as does the general reduction in international cooperation among governments.
The internally inconsistent comments by the President-elect and his associates adds to the uncertainties: Some of the proposals being bandied about would suggest large sudden reductions in government spending that could bring any upcoming recession forward in time and deeper. Other comments and proposals could lead to even larger federal spending and borrowing, prolonging the current expansion. The lack of clarity has market participants waiting, and jockeying between being positive or negative toward gold and silver. It is too early to tell what the effects on the U.S. and world of the new government will be.
This uncertainty may persist well into the first half of 2025. Meanwhile investors seem inclined to remain long precious metals as portfolio diversifiers while they wait for more concrete signals of what comes next.
Sources:
CME Group, Bloomberg, CPM Group.
Disclosures: This information discusses general market activity or other broad-based economic, market and/or political conditions. It also refers to specific prices which pertain to past performance and should not be construed as research of investment advice. Past performance is not indicative of future results, and it should not be assumed that future performance will be as profitable or will equal the performance of the prices described herein. Investing in precious metals involves risk, including the risk of the loss of all or a portion of your investment. Precious metals prices can be volatile and influenced by a variety of different factors, including economic, political, social and market-related events. Precious metals are not suitable for all investors, and for investors for whom investment in precious metals is appropriate, are only suitable for a limited portion of the risk segment of such investor’s portfolio. GBI makes no recommendation whatsoever as to whether any client should invest in precious metals. Although the information contained in this document has been obtained from sources believed to be reliable, GBI does not guarantee its accuracy or completeness, nor does GBI have any obligation to or intend to update any of the information contained herein. This document does not constitute an offer to sell or a solicitation of an offer to buy any precious metals, nor does it address any specific investment objectives, financial situation, tax consequences or particular needs of any potential investor, and does not constitute investment or any other advice.
This report was produced for GBI by CPM Group LLC. CPM Group LLC is solely responsible for the contents.
