Another Opportunity to Purchase Gold and Silver?

Nov. 14, 2018
by Bob Adelmann

With gold closing at $1,202 an ounce and silver closing below $14 an ounce on Tuesday, safe haven hard money investors have the third opportunity in three years to take advantage of such prices.

In November 2015, gold bottomed at $1,081 an ounce; in December 2016 it found support at $1,169 an ounce, and on Tuesday it dropped $1.50 from Monday’s close to finish at exactly $1,202.

Three separate studies have shown the connection between monetary uncertainty and the behavior of precious metals prices. The first, completed by Jonathan Batten, Cetin Ciner and Brian Lucey, concluded that “gold volatility is shown to be explained by monetary variables” such as inflation, interest rates, and Federal Reserve policies.

The second, by Lucey alone, concluded that “during some periods silver, platinum, and palladium act as safe havens when gold does not.” The third, completed by professors Michael Chng and Grant Foster from Australia’s Deakin University, concluded that during bad times gold behaves more favorably while during good times, because of its industrial demand, silver performs better.

Overall, then, an investment in precious metals deserves to be part of any hard money investor’s portfolio, especially when current prices give them another chance to buy low.  

Especially when those outside “monetary variables” are in play, causing angst among traditional paper asset investors who don’t know where to turn.

Monday’s selloff in stocks brought the Dow Jones Industrial Average (DJIA) down to 25,377, off more than five percent since early October. Other averages followed suit. Traditional investors are asking: Is this decline a harbinger of further declines to come, or, more ominously, an end to the one of the strongest economic rebounds in U.S. history?

The president blames the Democrats. On Monday he tweeted that “the prospect of Presidential Harassment by the Dems is causing the Stock Market big headaches.”

Those headaches are likely to be substantial as far-left House Democrats take over powerful seats in the new Congress. Whether they gain traction is another matter entirely. Featuring such far-left anti-Trumpers as Nancy Pelosi, Maxine Waters, and communist Elijah Cummings could backfire in the 2020 reelection campaigns. Without an apparent legislative agenda, the Democrats will rely on loud and noisy opposition to the president’s policies, which is likely to tire voters two years from now.

But the noise and the commotion and the threat of sanctions on members of Trump’s administration and the potential impeachment of the president himself will likely give the financial markets more than they can stand, increasing volatility and anxiety among paper asset investors.

Some are blaming Apple for Monday’s sharp selloff when it fell substantially after one of its key suppliers issued a softer than expected forecast because of weaker demand from Apple. This caused JPMorgan to cut its price target on Apple.

A cut might just be in order. On January 1, 2009, Apple’s stock was selling at $12.55 a share. As this is being written, it is trading fifteen times higher, at $192 a share.

 

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In fact, the overall market might just be due for a breather as well. A year ago the Dow was trading just below 19,000. Tuesday’s close, despite the selloff, was 35 percent higher, at 25,286.

The blame game included global slowing risks being reflected, it was said, in the sharp decline in the price of crude oil. This was caused, it was said, by Iranian sanctions being partially lifted, allowing an unexpected million barrels of oil a day to continue to flow from that rogue regime into world markets. OPEC reacted by threatening to withhold half a million barrels of its own daily exports starting next month while at the same time trying to persuade other members of the cartel to cut their own production as well.

Blamers are also pointing at Trump’s trade dispute with communist China, suggesting that the intransigent Chinese will allow their weak economy to weaken even further rather than come to terms with the American president. Those terms are stout and include concessions concerning the theft of U.S. intellectual property, the subsidizing of critical basic industries in order to weaken the United States, and the manipulation of its currency (and its statistics) in its favor.

Meanwhile prices of precious metals have languished, watching the unfolding drama from a safe distance. Those who have been waiting for an entry point to take a position in precious metals at prices with little downside risk now have a third opportunity. If the scenario depicted by the blamers unfolds, those buying low will join those who bought low in the past, giving them peace of mind while paper investors are losing theirs.

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Sources:

ScienceDirect.com: The macroeconomic determinants of volatility in precious metals markets

Professor Brian Lucey, Trinity Business School, Sydney, Australia:                       What Precious Metals Act as Safe Havens, and When? Some US Evidence

Chng and Foster: The implied convenience yields of precious metals: Safe haven versus industrial usage

Gold futures 3-year chart

CNBC.com: Dow plunges 600 points as Apple leads tech rout

MarketWatch.com: Stocks close sharply lower as Dow tumbles 600 points in wake of oil-market woes

CNN.com: The real reason why the stock market is down

3-year chart of DJIA

SeekingAlpha.com: Apple: The Shine Is Off (includes chart of APPL price action from 2009)

Another chart of APPL’s price action

USAToday.com: Newly empowered Democrats gear up for a barrage of Trump investigations: It will be ‘all hands on deck’

Crude oil one-month price chart

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