Precious metals continue to struggle at regaining their footing after enjoying a positively supersonic April through July.
The 30% surge enjoyed by gold during that time was stopped in its tracks with the arrival of August. During the last two months, gold has dropped nearly 6%.Silver has fared a little worse following its robust April-to-July run of slightly more than 70%. From the beginning of August through today, silver has fallen 6.6%.
Unsurprisingly, even some true believers who’ve been “all in” on precious metals for months now are growing a little shaky in their resolve. They want to continue loving gold and silver, but are a little worried they may be hanging on to an asset that has already done everything it’s going to do in the current precious metals bull market.
I’ve addressed this in recent posts. Longer-term projections for both gold and silver are still robust, due in no small way to the fact that the underlying economic drivers of metals remain very much intact. As long as the Federal Reserve is both fully committed to highly accommodative monetary policy and continuing to encourage record levels of government deficit spending, it’s difficult to envision how the near-term environment could turn bad for precious metals.
Still, as the current price trends of gold and silver persist in the downward direction, those who own the metals presently as well as those still weighing a purchase are looking for every bit of reassurance they can find that their loyalty to the safe-haven assets is not misplaced.
Perhaps they’ll take comfort in a recent declaration by one of global finance’s most recognizable names that it’s forgoing the dip in equities and instead buying the one in metals. In my opinion, their reasoning makes all the sense in the world and underscores just how dominant that the pro-metals influences are becoming within the economic landscape.
Analysts: “Alternative Cash Preservation Assets” Like Gold Are Ideal Right Now
It’s difficult to imagine anyone watches markets closer than the world’s very largest financial institutions. And according to one – Citigroup – the recent drops in precious metals and equities have created a buying opportunity – in one of those asset classes, that is.
Despite the fact that the S&P 500 has sunk roughly 7% in September, Citi’s global asset allocation team thinks savers looking to make a move into something would do well to fix their attention on gold instead.
In a different environment, a major equities index falling 7% would be an invitation for new money. But Citi has very specific reasons why savers should be looking at gold instead of traditional markets right now, and they’re all rooted in what is probably metals’ single favorite word: uncertainty.
Banks and asset managers have been moving to gold and silver this year largely based on the current and anticipated economic environment cued by the pandemic. Depressed economic conditions are expected to remain in place for some time to come, which means the primary, underlying drivers of gold and silver should persist.
But Citi expects the general climate of economic uncertainty will be exacerbated significantly by growing political uncertainty as the year wears on.
“A political process that cannot accurately ascertain its leader, parties refusing to accept results and potential social disorder, all damage credibility and lower the confidence of investors, especially in light of everything else happening in the background,” Citi strategists write. “Challenge to the rule of law would lead to a reassessment of historically ‘safe’ U.S. assets (including U.S. Treasuries and the U.S. dollar) even if only temporary.”
The prospect of continued – and worsening – national social and political upheaval against the backdrop of an existing, strong pro-gold environment suggests to Citi that alternative assets such as gold will look as good as mainstream assets will appear shaky. Citi said they’re buying the current dip in gold as mounting uncertainty is “likely to push investors back into alternative cash preservation assets.”
Sociopolitical Upheaval Improves Metals Opportunities in Existing Pro-Gold Environment
I noted earlier that gold and silver are each down about 6% from August through today. It’s understanding why such a pullback is concerning, but it’s important for retirement savers to keep such shorter-term price trend moves in perspective. The epic precious metals bull market that ran from 2008 to 2011 as the financial crisis played out saw numerous periods where both gold and silver backslid even as their overall longer-term trends were higher.Although gold traveled upward 160% from November 2008 to August 2011, it dropped 12% from February to April of 2009 and fell about the same from November 2009 to February 2010. And those are just two examples of gold’s stumbles during that robust period for metals. At the end of the day, precious metals tend to strengthen when the economic environment is as favorable for gold and silver as it was then – and is again today.
Also Read: Big Time Fund Moves Cash into Precious Metals.
Many suggest the overall economic, political and social environment that characterizes the U.S. right now is unlike any we’ve seen before in our history. Whether that’s factually true or not can be debated. What isn’t as debatable is that our present national circumstances suggest higher risk to more mainstream assets historically popular with retirement savers as well as superior opportunities for alternative safe-haven assets such as gold and silver. Given this, as select asset classes have experienced greater volatility of late, global megabank Citigroup says the improved buying opportunities to be found in “alternative cash preservation assets” are the ones getting their attention – and money. Retirement savers wondering what move to make next may find the Citi approach to be instructive.