Precious Metals

Gold’s Strength Transcends Inflation – Gold & Silver November 2021 Update

  • Inflation is not the big economic problem at present.
  • Investors are not particularly worried about inflation. That is why gold prices have not moved sharply higher this year.
  • The lack of long-term inflation and inflation concerns is all right for gold: gold prices have risen from $270 in 2000 to $2,000 last year in the absence of inflation.

Prices

Gold and silver prices have been in a range in recent weeks. However, within these narrow ranges, prices have been rising, with higher lows and ceilings around $1,800 and $1,810 for gold and between $24 and $25 for silver. There appears to be upward momentum.

Gold Prices: 1 January 2021 to 1 November 2021

Prices have been restrained by a reduction in economic concern on the part of investors. Economic recovery continues, putting upward pressures on interest rates, the dollar, stocks, and bonds. This has kept investors focused on stocks and bonds rather than gold and silver over the past three months.

Inflation has continued to post high year-over- year increases, but investors view inflation as being less important than do various market commentators.

In this environment, gold and silver have faced small reductions in investor buying compared to levels in the middle of 2020 and earlier this year. Demand remains high compared to periods prior to 2020. This is reflected in the fact that prices have not fallen further, and spring back on bargain hunting buying when prices do spike lower.

CPM expects gold and silver prices to rise over the last two months of 2021, albeit modestly in the minds of some. Beyond the end of 2021 CPM expects gold and silver to move sideways for much of 2022, before rising in later years.

Silver Prices: 1 January 2020 to 1 November 2021

The economic factors that matter now

As always, investment demand trends and thus gold and silver prices will depend on how investors view the overall economy and political environment. There are a great deal of concerns facing investors. However, as just written, in the short run investors are focusing more on further potential increases in stocks in an environment of low but modestly rising interest rates. This presents some negative pressures for gold and silver.

This is important for two reasons. First it is leading to “lower” prices now. It also is setting the stage for a shift in investor focus from stocks and bonds to gold and silver as investors at some point in the next few months are likely to shift from economic optimism to economic reality.

Inflation is not a problem

Investors – who set prices for stocks, bonds, currencies, and precious metals – rightly are not focusing on inflation concerns.

U.S. Inflation

Most attention has been focused on year-to-year changes in inflation rates, comparing price levels over the past six months of strong economic recovery and expansion amid supply disruptions, to inflation in the second and third quarters of 2020, when consumption in the United States and the world was shut down.

Viewed in month-to-month statistics, the surge in prices was greatest in March through May. Since then, the monthly inflation rates have been cut in half. Monthly price inflation is closer to pre- pandemic levels than it is to the ‘transitory’ period of greater increases in prices in the first half of the year. Core inflation measured month- to-month is in line with the inflation rates typical from 1993 through the first quarter of 2020.

One-Month % Change in CPI for All Urban Consumers

Investors are right to downplay inflation

The reality is that inflation has not driven investment demand and precious metals prices higher since the early 1980s.The table below and the accompanying chart illustrate the extent to which gold prices have risen massively since 2001, even as inflation was not an economic problem.

Investors were buying gold for all those other reasons.

Correlations
1970 – 2020 9%
2000 — 2020 1%
2008 — 2020 -5%

The inflation fear mongers are fighting a war lost four decades ago, tactics most investors have moved on from. Investors are focusing on economic and political trends that are important now, for stocks, bond, currencies, commodities, gold, and silver. Investors are not ignoring inflation issues; they merely are treating them with the respect and concern they deserve now.

While inflation is not concerning many investors or driving hordes of investors into gold and silver, those other factors are setting up for investors to pivot away from stocks and bonds. We will see a wave of investment into gold and silver markets that, given their smaller size, should be reflected in higher prices.

Gold and U.S. Inflation, Quarterly, Through 3Q 2021

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