October 2022 - Week 4 Edition
Dollar Weakness, Fed Uncertainty Positively Impacting Gold and Silver Prices
Gold rose sharply from $1,620 to $1,655 (+2%) from 8:30 am EST to noon last Friday morning after news from several sources inside the U.S. Federal Reserve said the Fed will likely pull back from its most aggressive interest policy plans. Gold then stayed in the $1,650s throughout the weekend and Monday, due in part to a slightly weaker dollar. Silver grew even faster (+6%) last Friday, rising from $18.20 to $19.30, as investors poured money into silver ETFs at the greatest rate in almost six months.
Gold and Silver Advance on “Inside News” of the Fed’s Possible “Pivot” in December
The Fed’s previously announced plan was for another 0.75% interest rate increase next week, less than one week before the mid-term elections. Then, it would implement a fifth Scrooge-like 0.75% rate increase in mid-December, comprising the fastest series of big rate increases in Federal Reserve history, from a base of near zero last March. However, insiders leaked information to the contrary causing gold and silver to rise last Friday on fairly solid evidence that the Fed will NOT raise rates that much in December and may stop there, giving the economy a chance to digest their previous actions.
The evidence is fairly solid, since The Wall Street Journal published an article on Friday by Nick Timiraos, who is considered the unofficial conduit of Fed policy to the public. The Journal article was titled, “Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes” with a subhead: “Some officials are signaling greater unease with big rate rises to fight inflation.” The reason that article is important is because, according to Briefing.com, “Mr. Timiraos is thought by some to be the Fed’s preferred source for leaking insight on what they are thinking about monetary policy in order to gauge the market reaction to their thinking. He indicated the Fed will raise rates by another 75 basis points at the November meeting but will then possibly consider a smaller increase at the December meeting.” In addition, San Francisco Fed President Mary Daly said on Friday that Fed policymakers should start planning for a time when they can implement smaller interest rate hikes, although she did not pinpoint when that time would arrive.
As a result of this important Journal article and other Fed comments, gold shot up $35 (+2%) and silver rose over $1 (+6%) on Friday. The U.S. Dollar Index also fell by 2% in the same four-hour Friday morning span (as gold and silver rose), since a slowdown in interest-rate increases would likely cause a slowdown in global investment flows of cash into the dollar for its high-interest differential to foreign currency alternatives. The dollar rallied briefly but it is still down 1.3% from its Friday morning peak.
London Bullion Market Association (LBMA) Sees 10% Higher Gold & 50% Higher Silver Prices in 2023
The London Bullion Market Association held its annual conference in Lisbon, Portugal this month, and members were polled for their outlook on precious metals. These are the world’s leading gold miners, refiners and bullion traders from the largest bullion firms in the world. Despite gold’s decline in dollar terms this year, members predicted gold rising an average 10% over the next year and silver rising by over 50%.
Specifically, the average forecast of LBMA experts puts gold at just over $1,830 a year from now, about 11% above today’s $1,650 area. They see silver at $28.30, up over 50%. LBMA attendees also forecast platinum rising 35% to nearly $1,240 while the formerly hot palladium would rise just 2%, to $2,059.
The poll was taken Tuesday, October 18, so here are the prices then, plus their 1-year average projection:
The major reasons for the super-bullish silver outlook include: (1) a widening deficit of global supply vs. demand, depleting silver stockpiles; (2) recent shortages at Mints and fabrication plants, causing premiums of up to $14 per ounce (wholesale); (3) more hoarding, less selling by investors; (4) rising industrial demand in a variety of new uses, including solar panels, and 5 ounces per new electric vehicle; and (5) dislocations in global silver supply chains, especially with China curbing outflows to the rest of world.
Palladium – A Thinly-Traded Precious Metal Where “Anything Can Happen”
This doesn’t happen often with gold, silver or platinum – maybe once a decade – but it happens often with palladium: Since 2020, we’ve seen 40%+ price swings, up or down, six times in three years!
Why such large swings? Palladium’s high volatility is mostly due to its thin markets, compared to the three other precious metals. Palladium is almost 15 times scarcer than platinum, and it is often found only as a byproduct of platinum extraction. Like platinum and silver, palladium is more of an industrial metal than precious metal, with several applications, such as automobile production, electronics and dentistry.
- The early 2020 surge in palladium prices was due to the advent of COVID-19 and the subsequent fear of global supply shortages, but the equally rapid price drop in March was also due to the realization that those initial fears were likely overblown.
- The big 63% gain in early 2022 was obviously due to Russia’s invasion of Ukraine, since Russia is a primary producer of palladium, fueling fears of shortages, but the subsequent 40% drop by July reflected the sober calculation that Russia can sell its supply through third party neutral nations. This brought prices back down to where they began the year.
- Since mid-2022, subsequent price action continued to swing in violent jagged motion, from lows in the $1,900s most months to highs near $2,300 in the same month.
Looking at this track record, you would think palladium lends itself to trading but that is not necessarily the case. More than any other precious metal, you would do well buying and holding palladium over the longer term.
If you had simply bought palladium at the start of 2017, when it was just $706, you have almost tripled your money in less than six years – a far better long-term performance than with gold, silver or platinum.
Part of this exceptional performance by palladium is due to its relative rarity, but also due to its essential nature in certain industries, including catalytic converters in standard automobile engines.
Despite the promised switch to electrical vehicles, the “green revolution” has slowed down dramatically due to the ultra-high cost of automotive battery components, such as lithium, pricing most EVs out of middle-class budgets. Partly as a result of the return to consumer demand for more crude oil and standard automotive engine production, the demand for palladium has increased by over 40% in the last two years, to the point where palladium supply deficits are expected to push prices up over the next few years.
Call your account representative today to discuss a number of innovative gold, silver, platinum and palladium products that we have available for you.
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