January 2021 - Week 1 Edition
Precious Metals Soar as 2021 Begins
Gold soared $50 (+2.6%) and silver surged $1 (+3.8%) Sunday night and Monday morning to begin the 2021 trading year, after enjoying their best year of the past decade in 2020. Gold hit an 8-week high on a weak dollar, which fell to a 2.5-year low, based on record high deficit spending and printing of yet another round of “stimulus” checks last week. There is also more “safe-haven demand” following a surge in COVID-19 cases in the U.S., Europe and other parts of the world – which tends to boost precious metals prices.
Meanwhile, stocks are down on the first trading day of the year, with the Dow dropping 500 points at mid-day. This does not establish any firm trend for the year, but on Day 1, gold is strong and stocks are weak.
As we close out another year, gold is still beating stocks by over 3-to-1 in the new millennium. Since December 31, 1999, a $10,000 investment in gold has netted $55,448 in profits, while $10,000 in stocks has netted only $16,621 in the Dow Jones Industrials or $15,569 in the S&P 500. In the last 21 years, gold is the “golden constant,” while the makeup of the stock market indexes changes from year to year.
2020 in Review – Silver Beats all Stocks (and Other Metals)
While “Asset Price Inflation” Soars into Double-Digits
The year just completed, 2020, was a year in which most markets rose by double digits, fueled by an unprecedented infusion of cash from the Federal Reserve and the U.S. Treasury. The Federal Reserve added over $3 trillion to its balance sheet in under four months, from mid-March to June 30, increasing liquidity to the investment community through bond purchases, while the U.S. Treasury added a similar amount in stimulus packages to the American people. Since many businesses were closed and travel was restricted, most Americans did not spend this money on goods and services, or on travel and leisure, but on investments. As a result, Bitcoin soared, as did global stock markets, residential real estate and other investments.
In most years, either stocks OR precious metals rise, not both, but in 2020, both rose by double digits:
Other examples in major markets would include residential real estate and global stocks. In the last year, the Case-Shiller home price index rose 8.4%, its greatest rise in 14 years. In the last four months, its pace of increase doubled, to a 16.3% annual rate. Another example is the Japanese stock market, which has been depressed for decades, due to its high debt, a weak economy and a shrinking, aging population. Japan has the highest debt-to-GDP ratio (236%) of any nation on earth. Despite all these negative fundamentals, the Nikkei 225 Japanese stock market index has skyrocketed 20% in the last two months, in a buying frenzy.
Now, with new stimulus checks being sent out last week, we will see more money in the hands of American investors over the next week. The new Biden administration should be putting more money in the hands of Americans over the next two years. This is “Modern Monetary Theory” in action, which says “deficits don’t matter.” Pundits claim that there is no inflation, but “asset price inflation” is all around us!
Predictions for Gold and Silver in 2021
We’re off to a great start in 2021, but we won’t let that sway our previous forecast for 2021, made in the second week of December. We may be too conservative, but here was our forecast back then:
For Gold, I predict a six-month goal of $2,200 and a peak price of $2,350 in the second half of 2021.
Silver often acts like “gold on steroids” during a bull market, so I think it can exceed $30 this year, with a 30% gain to $32 per ounce, based on rising industrial use in solar panels plus rising investment demand.
Just as a reminder of what the mainstream banks have predicted, analysts at Citibank see gold rising to $2,200 in the first quarter – and then rising to $2,400 within six to 12 months.
Turning to silver, Barrons’ quoted three analysts who predicted prices ranging from $30 to $40 an ounce in 2021.
Among the three analysts quoted by Barron’s, the lowest figure came from Goldman Sachs analyst Mikhail Sprogis, who focused on silver’s role in solar panels, which should expand greatly during the Biden administration. Solar applications account for 18% of silver’s industrial demand and 10% of total silver demand, according to Sprogis, who set a $30 price target for silver in 2021. The median price forecast came from CIBC (Canadian Imperial Bank of Commerce), which predicted silver will reach $32 in 2021, citing the Fed’s low interest rate policies and rising federal debt supporting higher silver prices.
Citigroup was the most bullish bank, maintaining a $40 price target on silver over the next 12 months, due to investors seeking safety, plus industrial demand, particularly the robust demand in China. Citi also sees 12% growth in silver demand in traditional consumer segments like silverware and jewelry in 2021.
When there is uncertainty about the future, like now, that is the time to increase your precious metals holdings for another year of market-beating results and protection of your other portfolio assets. You can also place your precious metals into a tax-deferred IRA plan. Call your representative for more details. We make setting up a precious metals IRA easy!
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