“Heads, Gold Wins; Tails, Gold Doesn’t Lose” – Jim Rickards

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: How gold could soon break out, U.K.’s Royal Mint experiences peak bullion demand, and why silver can go up much higher.

Heads, Gold Wins; Tails, Gold Doesn’t Lose

As The Daily Reckoning contributor Jim Rickards notes on Zero Hedge, the worst-case scenario for gold appears to be running its course. It’s often stated that the stock market is gold’s primary competitor, but the inverse correlation between the markets has been absent for some years. Instead, bonds position themselves as gold’s archnemesis as investors look at the two and ask themselves: which is the better safe haven?

 

When the $900 billion December bailout was followed by a $1.9 trillion one and promises of $3 trillion more to be printed, investors were quick to expect inflation, and with good reason. Taking a look at the two safe-havens, Rickards hypothesizes they believed Treasuries were preferable with rates climbing off the floor of 0.508% in August 2020, and bought bonds instead of zero-yield gold.

To Rickards, this is what caused gold to remain rangebound over the past few quarters, (though it’s a pretty good range). The problem is that investors were too hasty in their inflation expectations, while placing too much faith in government bonds.

Rickards believes 10-year Treasury yields peaked at 1.74% on March 31 and are unlikely to spring back up. That view isn’t difficult to corroborate given the dire straits of the global bond market.

Gold responded by jumping from around $1,680 to $1,850 since then. As Rickards points out, gold prices are driven more strongly by actual inflation than inflationary expectations, and the former has so far been widely outstripped by the latter. With Ricards’s worst-case of rising bond yields and no inflation behind us, he explains gold finds itself with two paths ahead, each of them bullish.

If Treasury rates continue to decline in the absence of inflation, lessened appetite for bonds will drive investors to gold. Lower yield reduces the opportunity cost of holding gold instead.

On the other hand, if inflation does show up in clear fashion, buying gold will become an obvious decision (as history has proven). As for other drivers of gold’s price, one only needs to look at the incredibly disappointing jobs report from April 15 cast doubt on the certainty of the U.S.’s economic recovery.

Ultimately, Rickards makes his case in plain language:

Gold has a better track record of predicting economic developments than any other asset class. Gold looks so far ahead that investors often cannot see what the gold price is saying.

In other words, if you don’t understand gold’s price, then your assumptions are faulty. Gold is right.

U.K. Royal Mint’s silver bar sales up 540%, and silver coin sales double

Since February, we’ve seen that the organized attempt to create a short squeeze in the silver market didn’t reach its goal. Does it now pay to reassess this notion? Mints around the world have either been posting record sales or emptying out, and the U.K. Royal Mint is the latest example of sky-high silver bullion sales coming in month after month.

As the Mint revealed on Thursday May 13, its sales of silver bullion bars jumped by a massive 540% year-on-year, along with a no less impressive doubling of its sales of the 2021 1-oz Britannia silver coin.

The latter showcases how investment demand for silver increases with each passing month, as shown by silver’s recent climb to a near 2-month high of $28. Andrew Dickey, divisional director of precious metals at the Mint, said that exceptional demand from last year has continued into 2021. Dickey took note of bullish expectations for silver due to numerous favorable factors.

“Many analysts predict a bright future for silver for the remainder of 2021. Accommodative monetary and fiscal policies – traditional drivers for demand in precious metals – are expected to remain in play as the economy continues to recover from the pandemic,” he said. “Furthermore, silver’s use in emerging green technologies have also contributed to the positive sentiment towards the metal.”

Why silver experts think gold’s 70% year-on-year increase is just the start

Ole Hanson, head of Commodity Strategy at Saxo Bank, recently spoke to CNBC about silver’s performance in comparison to gold and how its many demand drivers position silver for much higher gains (for those who don’t mind a bit of volatility). Over the past year, gold has risen by 6%, an undoubtedly high percentage for the safest of havens with a high price tag.

In contrast, however, silver jumped from $15.50 to around $28, representing a 74% price increase over the same period.

Of course, with more upside comes more downside, but Hansen’s expectations for higher prices go in line with the Silver Institute’s earlier report which went over the metal’s many uses past just investment.

Hanson explained that investment demand makes up for only 50% of overall silver sales, and he believes that the remaining industrial component will keep pushing prices higher as the global economy recovers from an unprecedented blow:

Industrial demand is probably the main reason why we’ve seen silver outperform gold, as it has over the last year… part of that rise is definitely coming from industrial metals which have really been on a tear. If you look at copper prices, they’ve more than doubled since hitting a low-point last year.

Hanson, like the Silver Institute, thinks investors should keep an eye on the green energy sector (especially solar and electric vehicles) as demand for these silver-heavy sectors continues to rise.

Via Birch Gold Group