Keep an eye on gold and silver

Keep an eye on gold and silver

After briefly rising above 2000$ per ounce, beginning of August, gold then corrected about 7%. Silver, being a lot more volatile than gold, corrected even more. However, the important threshold of 1850$ was not broken and now gold has risen again to 1930$. Goldmines rallied around 5 percent on Friday. This movement finds, in my opinion, its origin in the new stimulus bill that is being prepared in the US. The amount involved would be around 1,8 TRILLION dollars. That is 1.800.000.000.000 US dollars. To be reimbursed, in theory, by future generations.

Figures of this size become meaningless so let us calculate what this represents. Imagine the equator. That is 40.075km. Imagine now that in order to stimulate the economy, the US government would purchase cars, take Dacia Sandero’s. With 1,8 trillion $ you would be able to put  more or less, 20 rows of Dacia Sandero’s, bumper to bumper, along the equator. That’s what it represents.

Now I am convinced that the governments and central banks are right to provide a social safety net for the millions of people that have and will lose their job because of Covid. Imagine working for an airline company now, or any other travel related business. Your children are going to a nice school and you have a mortgage on your house, a car and a cat to pay for. Imagine the anguish, fearing your entire life going up in smoke.

So yes, the government’s deficit spending and central bank’s money printing are necessary now. They were, in my opinion, much less defendable in the pre-covid period but no way remedying that any more.

Anyway, the new US stimulus bill should normally result in further rising stock markets and the end of the current correction. However, the threat of new lockdowns in Europe, the possibility of an unconvincing victory of one of both candidates in the US presidential elections, with the legal mess that would generate and also the markets currently being far from cheap (and that is an understatement) hold me back from giving a green light to start adding massively to share-related positions. Be it growth or value stocks.

I am more bullish on gold and gold related investments, including silver. In my opinion we could, in the coming weeks, see a re-test of the threshold of 2.000$/ounce. Once that border is convincingly broken, the sky is the limit. If gold and gold-related investments are underrepresented in your portfolio I would not wait too long to add to them. The train could be leaving the station.

But again, keep your portfolio balanced. A prudent Individual Investor has convictions, but also invests with one idea in the back of his mind: “What if my convictions prove to be wrong?” Therefore, yes, I am now positive on precious metals, but do not overdo it. Keep it safe, also whilst investing.