‘Tis the Season…for Silver & Gold Investing

by Dec 16, 2020Investment Strategy, Market Insights

Gold and silver often begin a significant seasonal rally around the time of the Fed’s December meetings. The latest Fed meeting was held earlier this week—and right on queue, gold and silver went up nicely that morning.

Now is the time to consider gold as an investment since the precious metal is rallying and looks to keep soaring in 2021.

From a technical perspective, the chart above shows a very bullish technical pattern with a target price for gold of $3,000 per ounce. If we were to expand the balance of the chart to reflect all of 2021, the trajectory of the technical move would exceed $3,000. The basis of the chart’s technical pattern—the inverse Head & Shoulders pattern—implies a significant breakout to the upside, which should continue the upward trend of gold through 2021 with its price moving to $3,000.

The silver chart (not shown) looks very similar with a target of $50 per ounce.

What’s in stock for precious metals in 2021?

I believe we are finally clear of the up-and-down price choppinness we’ve seen in precious metals the past eight weeks. And, seasonally, we’re entering the sweet spot on price appreciation. 

But first, a few important tail winds that will continue to support the precious metals price appreciation thesis:

What will drive silver and gold prices higher?

The US is moving towards more LOCKDOWNS (more like shutdowns)! California, for instance, has already imposed a second round of lockdowns, and a few days ago Mayor de Blasio warned New York City to prepare for more lockdowns as well. And now, Joe Biden’s top medical advisor has suggested a full-scale, nationwide lockdown of four to six weeks to get “control of the pandemic.” What’s next?

More lockdowns = more economic downturn = more Fed interventions = more money printing = gold and silver prices rising

If anything has become clear in 2020, it’s that policymakers will deal with any and all problems, both in terms of our health and the economy, by—you guessed it—printing more money.

This massive currency dilution is why the dollar has been dropping like an anchor since March, erasing two years of gains in the span of just nine months. Last week, we saw a two-and-a-half-year low for the dollar.

The US dollar is on a strong downward trajectory into the new year, which is great for gold investing.

I believe this pattern will continue since the only way to reverse it is if the government stops the money printing presses while, miraculously, still being able to fund our growing deficits.

A falling dollar will accelerate US inflation until it leads to HYPERINFLATION

Take a look at what copper, steel, and gold are doing and you’ll see assets exploding out of multi-year downtrends.

Copper, steel and gold are all looking strong, making the case for gold prices to soar and demand to rise for gold investing.

What will happen to interest rates in 2021?

The interest rate market is probably the most contrarian of all trades today. The entire investment world, including the Fed and the European Central Bank, believes that rates will stay at zero or below for years to come. Normally when consensus is that strong to one side, the opposite happens.

Also, a weaker dollar will INCREASE inflation, which will put upward pressure on rates. In the interim, we will see an escalation of what we have been seeing for the past two decades as inflation is higher than interest rates set by the Fed. Economists call this Negative Real Rates.

What do negative real rates mean for silver and gold investing?

Gold and silver benefit from negative real rates, and this is why an investment in either of the two metals in the last 20 years has beaten every stock market index by more than 3 times. And both gold and silver can still rise strongly with high nominal rates when inflation is higher. 

We saw this play out in the 1970s to early 1980s when rates jumped above 20%: gold went from $35 per ounce to $850 per ounce (in four short years, mind you: 1976–1980), and silver appreciated over 3,300% (also in 1976–1980)! 

During that time, inflation remained higher than interest rates. Get ready for a rerun of the “That ’70s Show,” folks.

This is the BIG theme for 2021, no matter what else may come: more money printing, more inflation, and more explosive moves in inflationary assets like gold and silver.

Investors who are well positioned to profit from this situation could literally see fortunes.

Darwin Hostelley

Darwin Hostelley

Sr. Portfolio Manager, Gold Alliance

About Darwin Hostelley

Darwin has over 30 years of experience in the investment and risk financing sectors, focused on precious metals as investment assets. As an avid writer, Darwin has published multiple articles about investing in gold and silver, with a focus on their ability to protect and grow his clients’ investment portfolios. As a leading Sr. Portfolio Manager with Gold Alliance, Darwin oversees many of our clients’ portfolios.