Gold and Silver prices going vertical

July 24, 2020 by Matt McCracken

Disclosure:  Our firm is long CEF, SGOL, SIVR, PAAS, AU and NEM as of the day of this article's publication. 

Gold and silver prices have gone straight vertical the past week.  We have precious metal exposure for our clients through three different ETPs, which are:  CEF, SGOL, and SIVR and they were up 8.9%, 4.9% and 17.%, respectively, in just one week.  A pretty explosive gain, indeed!  Gold is sitting just below its all-time highs while silver is still more than 50% off its all-time highs but nearly 100% above its 52-week lows.

Gold bugs are doing backflips, FIAT apologists are freaking out and media pundits are scratching their heads wondering what in the wide, wide world of sports is going on.   I think there are many angles to the gold and silver story but I'll start with the most obvious. 

For as long as I can remember, the knock-on gold and silver was that "it had no yield."  No one was paying you to own it.  Bernanke, Bogle, Buffett, Dimon, Greenspan, you name him and they would all regurgitate the same mantra as to why buying gold or silver was a fool's errand.  But guess what...Now US Treasuries have virtually no yield.  But where are they now claiming, "Why buy US Treasuries?  No one is paying you to own them!"  Has JP Morgan come out and said they were recommending clients liquidate all their US Treasury exposure b/c now it too has no yield?  Heavens no. 

So which do you prefer...a bond with no yield issued by a country that is running endless deficits, faced with massive future liabilities and backed by a FIAT currency run by a central bank that just blew up their balance sheet to the tune of $5T?  Or, a precious metal that cannot be magically created with a simple click of a mouse and has been considered a store of value the world over since the second chapter of Genesis, even before Cain knocked off Abel.

Now that US Treasuries have essentially no yield, it makes perfect sense that gold would supplant US sovereign debt as the safehaven du jour.  Now the question is, will there be sufficient supply of gold and silver to meet physical delivery requests when futures contracts expire the next few months?