If you’ve been on any social media frequented by gold and silver bugs recently, you’ve no doubt noticed the wails and gnashing of teeth as the metals and miners have stagnated. But while the short-term technicals look concerning, the current weakness represents a buying opportunity, says Brien Lundin, executive editor of Gold Newsletter.
Last month, I led off with an apology that there really wasn’t much to talk about in terms of macro, markets, the metals, or the miners — until we saw an end to the US-Iran conflict. Here’s another apology: That all remains true today.
As you can see from our accompanying chart of the gold price, the metal still hasn’t been able to break out of the trading range it settled into after the big post-conflict correction. Every move toward the top of that range has come when President Trump has announced that a deal was close. And every move lower has come when those hopes were dashed.
The good news for longer-term investors is that, from a fundamental standpoint, the outlook remains about as positive as one could hope. As I and others have been reporting, Treasury yields, both on the short and long ends of the curve, have been climbing.
Pundits talk about how dollar strength has worked against the metals recently, but that’s just a downstream effect of rising yields and the factors behind that phenomenon. And in my opinion, yields are rising for a few reasons.
For one, investors see the risk of a prolonged conflict with Iran, the higher oil prices resulting from that, and in turn the impact on inflation and Federal Reserve policy. On that note, the newly-installed Fed Chairman Kevin Warsh has already acknowledged the risk of rate hikes if inflation expectations become anchored. All of the above has investors demanding higher returns on Treasuries in the face of these risks.
Another factor has been sovereigns selling Treasurys simply because they need the money. My friend Peter Boockvar summarized this factor well recently.
