Why gold could face substantial headwinds in the weeks ahead

Precious metals may be facing substantial headwinds in the coming weeks, writes Betts Group managing director, Charlie Betts.

The fact that gold in particular fell by 8% from 1831/oz on 4th August to under $1700/oz briefly in the early hours of 9th August demonstrates a vulnerability in the gold market which we have not seen for some time.

The ongoing impact of the delta variant is also calling into question the speed of the potential recovery and consequent levels of commodity demand.

Is the real rally in gold yet to come?

After the historical precedent of the 2008 crash, gold did not properly react until 2011.

Barrick Gold CEO, Mark Bristow recently commented that the “market didn’t really react to that because it was desperate to see us come out of it before we really appreciate the damage that it had made”.

It’s a sentiment that seems wholly applicable to the current situation, with stock markets remaining above their long-term averages in the face of unprecedented and coordinated global money printing.

The logical effect of the current fiscal intervention across the world is huge inflation, which would send the price of gold to hitherto unimagined levels.

Currently the technical outlook for gold looks challenging, but it would not be surprising to see a significant rise in the medium to long term. Once the dust settles on the true economic fallout of Covid-19 and inflation begins to really impact, expect the longer-term outlook for gold to be far more positive; we may yet see Mr Bristow’s ‘real rally’ in gold before the year is out.

Silver has continued to take its lead from gold, but with the greater volatility we have come to expect from this smaller market. At the time of writing, silver was languishing at 23.36/oz after the recent sharp sell-off, over 25% below the highs of over $29.50/oz seen at the start of February 2021.

Like gold, the longer term outlook for silver is strong, with considerable industrial sector supply demands coming down the track from wiring looms in electric vehicles and photovoltaic cells.

As with other commodities however, there are substantial concerns over how quickly industrial demand will rebound as the delta variant continues to wreak havoc on the global economic recovery.

When gold does finally bounce back from its current doldrums, expect silver to bounce harder.

This article is an excerpt taken from the latest 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 click here.