Gold and silver prices can make strong gains as the Ukraine crisis continues. The article looks at the medium-term influencing factors that need to be taken into account.
War, terror, uncertainty - a good environment for gold - one would think. A look at the past, however, shows: Those who bought the precious metal solely because of a war or a terrorist attack did so out of the wrong motivation.
But: war, terror, uncertainty are not enough for a sustainable price increase. Sure, in the short term the fear of war caused investors to flee to the safe haven of gold, and that caused a price jump. But this did not last long. Even the terrible attacks of September 9, 2001, in New York caused only a brief rise in the price of gold. Within a few weeks, this movement was almost completely eroded.
Inflation and interest rates
The medium to long-term trend in the price of gold is determined by other factors: Inflation and interest rates. Again, let's take a look at the past: gold regularly hit a cyclical low before the first interest rate hike, then traded weaker for another two to three weeks, and then started to rise. The frequently cited negative correlation between interest rates and the gold price cannot be proven historically. On the contrary, when the Fed raised interest rates for the first time in 1999, gold started a bull market with a delay of a few weeks, which lasted until 2012. When the Fed first raised rates in December 2015, a rally of more than 30 percent in gold prices followed within eight months.
What we do know: history repeats itself (often) - but never the same.
What we can learn from it: A price rally could be coming
So if history repeats itself, or at least serves as a model, then we should see another rally in gold, but also in silver, in the coming weeks and months. The Fed wants to raise interest rates again for the first time in four years. This could lift the gold price to a new all-time high beyond the 2075 dollars from August 2020. From a technical perspective, the way would then be clear to much higher prices up to the $2300 range.
The portfolio is well positioned for this with up to 10% in physical silver ($PSLV instead of $Silver) and various mining stocks (especially $SCCO and $FCX). In these times, these stocks serve both a performance and a hedging purpose.
Further Sources: https://goldprice.org/gold-silver-ratio.html