With the surging price of gold hitting two year highs, SD Bullion has seen higher demand than normal with customers wanting to sell gold and silver. We've also seen high demand in buying gold and silver as well; with May being the second largest volume month of 2019. This volatility has been good for two reasons. One, it's allowing some investors to exit at a price they've been waiting on for a couple of years. Secondly, when the market it flooded with customers selling back their secondary coins, bars and rounds, the premium prices of these products tend to go up. This allows investors looking to take a position in a secondary market product a lower entry premium price (when looking at historical premium prices).
Here's the full update from our in-house market research team...
The price of gold has hit the ground running to start the month of June, trading today, Wednesday, June 5th, 2019 right around the tough resistance level of $1350 per ounce. This comes after gold traded down into the $1260’s just a month ago.
Silver prices look like they are finally catching a bid too, with the white metal poking its head above $15 just today.
With this increase in upside price volatility, there has been a noticeable increase in the buying of physical gold bullion and physical silver bullion.
Additionally, SD Bullion has seen an increase in investors selling their precious metals back in order to capture these higher market prices. In fact, many investors who may have purchased gold or silver several years ago, investors who are down over all, dollar-wise, on their investments, are deciding to potentially exit their precious metal position and liquidate their holdings altogether, especially given that the stock market has been moving higher, bonds have been rallying, and the dollar has maintained its relative strength of the past several years.
Part of this decision stems from the belief that the Fed has the stock market’s back, the US bond market is the prettiest house on an ugly street, and the United States economy is an island of strength in an ocean of economic weakness.
Furthermore, recent comments from Fed officials help reinforce this belief. For example, on Monday, James Bullard of the St. Louis Fed said that a Fed cut in interest rates may be appropriate given weak US inflation and increasing global economic tensions stemming from the trade wars. Just yesterday, Fed Chair Jerome Powell said the Fed was pretty much prepared to do whatever it takes to keep this economic expansion going, which could roughly be translated to keeping the stock market elevated if not charging on to yet even higher all-time highs.
So should investors and potential investors buy or sell their physical precious metals holdings right now?
While every individual investor must come to their own conclusions only after doing their own due diligence, here are a few things to consider:
A Dovish Fed is “good for gold”. When Fed Governors are making the types of comments like they’ve been making this week, they are essentially talking about lowering interest rates, pausing the Fed balance sheet run-off, and printing-up fresh new money for the purposes of restarting the asset purchases in an operation known as “quantitatieve easing”. Bottom line: The Fed is signaling lower interest rates and inflation are in the chute, and since gold and silver (ie: gold bars, gold coins, silver bars, silver rounds) are the ultimate hedges against inflation, all of the Fed’s talk should be music to a gold and silver investing bull’s ears.
The US bond market has been rallying. Yield on the benchmark US Treasury, the 10-Year Note, has been falling for the better part of a year, moving from over 3.0% in September of 2018 to barely above 2.0% today. Falling interest rates are “good for gold” because while it is true that gold “doesn’t pay interest”, when factoring for inflation, real interest rates are either flatlined or even negative. Earning zero interest on one’s savings is better than negative interest rates every day of the week. Said differently, a 1-ounce Gold American Eagle safely hidden away in a shoebox somewhere, or a 10-ounce silver bar strategically secured in the backyard shed will always be 1-ounce of gold or 10-ounces of silver, but a savings account with $100 in it and a negative interest rate of 2% will mean the amount of dollars in that account dwindles by 2% per year, compounded, until those savings reach zero. Bottom line: Gold and silver bullion are seen as safe investments which do not only have any counterparty risk, but they also are not subject to the slow leeching brought about by negative interest rates, be them nominal or real.
The US dollar has been relatively strong for five years. For now, the “booming US economy” narrative has been dominating the mainstream media’s take on the financial situation of the United States, and this narrative, in part, has helped keep the dollar relatively strong. Additionally, the world has taken the “flight to safety” in the form of the US dollar, especially over the last several years with many parts of the world including countries in Asia and Europe actually imposing negative interest rate policies. All things considered, the dollar may be closer to losing some of its strength when compared to other currencies, which, by extension, affects the purchasing power of all those who transact in US dollars. This weakening of the US Dollar is “good for gold”, so to say, as gold and silver are the only two monetary assets against which the premier world’s fiat currency can devalue. Bottom line: While gold and silver can move up as the US dollar increases in value as part of that flight to safety, if the US dollar loses value, gold and silver should move the inverse by rising in their dollar-based pricing.
One final consideration: Gold fever is really beginning to infect the planet. There is the saying, “there is no fever like gold fever”, and we are seeing the smart money coming down with a case of gold fever right now. In 2018, central banks around the world purchased more gold than they had purchased in the last 50 years, legendary investors were recommending gold in 2018, and hedge funds even realized the need to add gold to their portfolios. There is another saying, “do what the smart money does”, and its safe to say the smart money consists of more buyers than sellers right now.
When the fundamentals of supply and demand take hold, more buyers of gold and silver than sellers means that price should go up as more money is looking to move into a fixed amount of gold and silver.
The outlook for gold and silver is bullish, and it seems the second half of 2019 is already turning out to be very different than the first half. If this is indeed the case, that would mean to look for higher gold and silver prices in the months ahead, which means more demand for physical gold and physical silver, and continued heavy buying, not just by central banks, legendary investors and hedge funds, but also from the retail investor who may be understanding that gold and silver are finally waking up from their long slumber.
Gold and silver prices are on the move and excitement is coming back. What a great time to be a metals investor.