The precious metals prices are in decline.
After gold broke to $2,000 for the first time and even managed to climb to $2,075, the yellow metal crashed, dropping 10% in less than a week.
The same happened with silver, except that its price dropped by over 20%.
Many investors saw this as a sign of things to come, convinced that the precious metals bull market was just a fluke, and sold their holdings.
I pity their poor souls, and sincerely hope you were not one of them.
Panic selling is not what we’re about at Lahardan Financial.
In fact, moments like these present some of the best buying opportunities.
Back in March, when stocks were in free fall, everyone was panicking. I was one of them, except that I wasn’t selling. I was manically buying anything I could get my hands on. It’s also why I recommended my True Retirement Wealth subscribers to invest Facebook (FB) when it was trading at $153. The stock is up about 75% since then.
So, with investors panicking once more, this time about precious metals, I urge you to use this opportunity to load up on gold and silver.
Especially since fundamentals point to the further upside ahead.
What Do Fundamentals Tell Us About Future Gold Prices
The first thing you should understand about this correction is that it’s perfectly healthy.
No market can move upwards in a straight line.
When it does so, it’s usually a cause for concern and ends up in what we call a blow-off top—a chart pattern with a steep and rapid increase, followed by a steep and rapid fall. The 2017 cryptocurrency bubble is a perfect example of that.
So, I actually welcome the precious metals correcting at this point. It’s what should happen after the price moves the next leg higher in a healthy bull market.
Moreover, corrections are a frequent occurrence when an asset reaches new all-time-highs.
The time to worry is when the fundamentals change, or the price appreciates to unsustainable levels.
As a general rule, gold becomes expensive when it surpasses the value of the S&P 500. The index currently stands at around 3,400, meaning, gold would have to appreciate another 80% to get there.
Furthermore, the fundamentals behind the rise in gold prices haven’t changed at all.
Factors that are supportive of the price of gold are low bond yields, low interest rates, weak dollar, political risk, the threat of inflation, and rising consumer spending.
Bond yields and interest rates are highly correlated. So, with the Fed claiming they’re not even thinking about thinking of raising those, and with rumors of them imposing yield curve control—buying treasuries to lower their yield—this force will continue supporting higher gold prices.
The current administration, and I think this wouldn’t change under Biden, favors a weaker dollar because it helps U.S. manufacturing. It’s a popular tactic that Obama also used after the last recession. I don’t expect this to change either for at least another couple of years.
Political risk remains high because of the cold war between the United States and China. This is a multi-decade trend that no trade deal will stop.
With central banks around the world printing record levels of money, inflation risks remain high. Real assets, such as precious metals, because of their limited availability, are an excellent hedge against that.
Finally, there is consumer spending. It pretty much dropped to zero during the Spring lockdowns, and while it’s returning slowly, it’s rising nonetheless. This is again bullish for gold prices.
As you can see, it’s sort of a perfect storm for gold, so there’s no reason to believe that we have reached the top. Making this correction an ideal time to invest for those that have stayed on the sidelines for now.
And by the way, everything I’ve just said for gold goes for silver as well. The two metals are almost perfectly correlated. The only difference is that silver is more volatile, meaning the upside potential, as well as the downside risk, is higher.
My Precious Metals Recommendations
If you’re looking to invest in gold and don’t want to deal with the hassle of storage, you can find out about three ways to do it in this article.
If, however, you prefer full control over your investments, then you might find my beginner’s guide to buying gold bullion useful.
I would also suggest you consider investing in stocks of gold miners.
They’re making record profits this year and will pay much of that money back to shareholders in the form of dividends.
Good investing,
Leon Wilfan
