By Patrick A. Heller
Ignoring the effects of inflation of the money supply, the price of gold this week reached an all-time record high, closing on the COMEX on Aug. 5 at $2,031. Silver’s COMEX close on the same day of $26.87 was the highest for that metal since April 11, 2013, more than seven years ago!
From gold’s COMEX close on March 19, 2020, at $1,470.75, the price had risen 38.1 percent by Aug. 5. Since silver’s COMEX close on March 18, 2020, at $11.74, silver soared 128.9 percent by Aug. 5.
The question we are starting to hear is if it is “too late” to get in on the current boom in gold and silver prices. Part of the difficulty of answering such questions with certainty is that we will not know where the market will peak until after the fact.
However, past market boom cycles (which don’t guarantee future results) indicate the answer to such questions is no.
Let’s review what happened with gold and silver prices during The Great Recession of 2007-2009 and the aftermath. Let’s look at gold first.
My company’s working spot prices, which approximate the daily COMEX closes, show for gold:
March 18, 2008: $1,003.25, the last time gold closed over $1,000 for the rest of the year.
Oct. 31, 2008: $731.75, the lowest gold close during the Great Recession.
Feb. 20, 2009: $1,004.25, the next time gold’s price topped $1,000.
Nov. 9, 2009: $1,101, the first gold close more than 50 percent above the Oct. 31, 2008, bottom.
Aug. 5, 2010: $1,197.25, the last time gold closed below $1,200 before it soared to its August/September 2011 peak.
April 8, 2011: $1,473.50, the first gold close more than 100 percent above the Oct. 31, 2008, bottom.
Aug. 22, 2011: $1,897, the highest gold close until this past week, although intraday trading on some days in August and September 2011 reached prices as high as almost $1,924.
From the Oct. 31, 2008, bottom to the Aug. 22, 2011, peak took 1,025 days. Over the first 374 days, (Nov. 9, 2009 –over 36 percent of the total time period), gold was only able to achieve a 50 percent price increase. In the final 382 days of the boom (36 percent of the boom period), from Aug. 5, 2010, to Aug. 22, 2011, gold enjoyed over 60 percent of its total price rise over the entire 1,025 days.
The pattern is even more dramatic for silver. Here are my company’s working spots, which again approximate COMEX closes:
March 5, 2008: $20.69, the peak from which silver prices started to decline.
Oct. 28, 2008: $9.39, the lowest silver close during the Great Recession.
Dec. 1, 2009: $19.17, the first day silver’s price doubled that of the Oct. 28, 2008, bottom.
Sept. 13, 2010: $20.11, the first time silver again topped $20 from the Oct. 28, 2008, bottom.
Dec. 28, 2010: $30.30, the first close above $30 from the Oct. 28, 2008, bottom.
April 8, 2011: $40.60, the first silver settlement above $40 from the Oct. 28, 2008, bottom.
April 29, 2011: $48.59, the highest silver close since January 1980.
From the Oct. 28, 2008, bottom to the April 29, 2011, peak took 913 days. From the bottom, it took 685 days (75 percent of the time) for the price of silver to rise barely 27 percent of what it eventually reached. Over the following 228 days (25 percent of the time), the price of silver enjoyed almost 73 percent of the price increase during this boom.
In the last boom cycle around a decade ago, gold rose 159.2 percent and silver 417.5 percent from the market bottoms. That indicates that the August 5, 2020 increases of 38.1 percent and 128.9 percent from their lows less than five months ago are just a small fraction of how far prices could rise in a boom market.
Also, as you can see from these patterns of gold and silver prices during the previous recession, the largest part of price increases occurred during the latter stages of the boom.
There is no crystal ball for how high gold and silver may reach. Both metals have already surpassed what some experts projected. Still, there are some major brokerage firms projecting that gold may reach as high as $3,500 within the next year or so. These same “experts” are mostly quiet about silver’s potential.
Early in 2020, the London Bullion Market Association (LBMA) published its 2020 forecasts (posted at www.lbma.org.uk/downloads/Forecast-2020.pdf) from 30 noted precious metals experts on the prospects for gold in 2020, and from 27 experts for silver. For gold, the average of all 30 forecasts for gold’s low, average, and high prices for 2020 were $1,444, $1,559 and $1,689. Ross Norman, the former CEO of Sharps, Pixley (a company that formerly was one of the five that established the London gold price fixes), was the most optimistic, forecasting an average 2020 price of $1,755 and a peak 2020 price of $2,080. Of the 30 panelists, Norman was the only one to project a 2020 high price of more than $1,800.
The LBMA panel of experts for silver, averaged together, forecasted 2020, low, average and high prices of $16.51, $18.21 and $20.49. The top forecast for silver’s highest price in 2020 was only $23.15.
Since both gold and silver prices are now above the 2020 forecasts of almost every expert, does that signal that prices now may stall and possibly retreat? While I cannot completely rule that out, I think the odds are that significant price increases for both metals are still in store this year.
You need to took at the factors of supply, demand and physical inventories for gold and silver. You also have to try to discern what is happening in the “paper gold and silver” markets. For years, there have been mostly shortages of physical gold and silver, which have become more acute this year. As for the paper markets, I sense there are several owners of futures contracts, options contracts, shares of exchange traded funds and certificates of metal stored at the Perth Mint, Royal Mint and Royal Canadian Mint who are replacing these ownership forms with custody of physical metals. Just from this perspective, I consider that gold and silver prices have a lot of room to rise in price before the end of 2020 – though it will not be in a straight line.
In projecting gold and silver prices, though, you also need to consider what is happening to the value of the U.S. dollar. The U.S. and world governments have engaged in massive spending and inflation of the money supply since mid-March. The U.S. Dollar Index closed on Aug. 5, 2020, at 92.860, down 10.4 percent from its 17-year peak at 103.605 on March 19, 2020. The Aug. 5 Index was the lowest for the U.S. dollar in more than two years. The U.S. government is on the verge of splurging even more with additional massive spending programs. So, just from this perspective, I again consider that gold and silver prices have a lot of room to rise in price before the end of 2020.
That’s why, when people worry that they are “too late” to purchase bullion-priced physical gold and silver coins and ingots, I see lots of reasons to assure them there is still time.
(To be fair to the LBMA panelists, by the way, none of them could have foreseen the massive inflations of the money supplies that governments began after the 2020 forecasts were published.)
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award 2012 Harry Forman National Dealer of the Year Award and 2008 Presidential Award winner. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2019), Professional Numismatists Guild, Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and become part of the audio and text archives posted at www.1320wils.com).