Precious metal markets take collective breath before next move

Having corrected and stabilised over the summer, the precious metal markets seem to be taking a collective breath before the next move, writes Betts Group managing director, Charlie Betts.  

Few people would argue that the long-term impact of Covid 19 on the global economy has yet revealed itself. 

After an initial almost universal sell-off across all asset classes at the start of the pandemic, precious metals swiftly rebounded and then rose sharply, being one of the leading beneficiaries of panicked investors the world over, looking for a safe-haven. 

Nobody can know for sure what that move will be, but it is clear that the astronomic levels of debt being created in almost every nation on earth are going to have to be partially absorbed onto central bank balance sheets in the medium term, in return for newly printed and increasingly less valuable currency. 

This simultaneous devaluation of every major currency creates an almost perfect climate for the one global currency that cannot be printed; gold. 

Couple this scenario with interest rates sitting around zero, making the opportunity cost of holding gold negligible and the case for further dramatic short to medium term growth in the gold market feels highly compelling.

Gold set for double digit growth?

Gold is perhaps the most interesting of the precious metals in the complex current macroeconomic climate. 

The case for a move to substantially higher prices as currencies are devalued has been made above and is clearly compelling to many investors, with record inflows to global ETFs in 2020. 

However, this sharply increasing investment demand must be weighed against an outlook of hugely damaged consumer demand in jewellery and technology markets. The World Gold Council’s ‘Q3 Gold Demand Trends’ ‘reported a 19% reduction in global gold demand to 892t (the lowest quarterly total since Q3 2009).

A decrease of 29% in jewellery demand and 6% in technology demand was not offset by the 49% increase in demand for investment coins. 

With many countries continuing to suffer severe restrictions on normal commercial activity, suppressed consumer demand is likely to continue for several months to come (although it may ultimately rebound sharply). 

Such suppressed demand makes hysterical forecasts of gold hitting $10,000/oz feel far fetched but it would equally be surprising not to see double digit growth, at least from gold, in the next twelve months. Gold opened 2020 at $1520/oz and rose to an August 2020 high of $2061/oz before retreating and then trading in a range either side of $1900/oz. 

At the time of writing, the gold price is $1891/oz. It would be wholly unsurprising to see gold trading in a $2300-2500/oz range within the next twelve months.  

This article is an excerpt taken from the November 2020 edition of Materials Recycling World, the market-leading business title for the recycling and waste management industry.To read the article in full, including an expert analysis of silver, platinum and palladium market performance please visit: mrw.co.uk/analysis-and-markets/material-focus-precious-metals-11-29-11-2020/