Precious metals investors ranging from the average American worker to central banks and even entire nations have been generally pleased with their holdings over the past few years. Gold has been hovering around $1900 since the banking collapses in March, compared to a recent low last November of $1630.
But gold and silver have generally been viewed as long-term holdings, more inclined to preserve wealth rather than being tools for investment and appreciation. This is why physical precious metals have grown tremendously in popularity since Joe Biden took office, whether one wants to keep coins or bars in their safe or if they want them to back their retirement accounts.
Despite the press by most gold companies to “buy buy buy” for quick returns, analysts are seeing now as the time to buy precious metals to hold for the longer term. This is especially true for those who have concerns over the potential for economic collapse or massive de-dollarization. Regardless of what happens with the economy, physical precious metals have always been easier to liquidate when necessary than most other holdings.
So, should investors be looking at precious metals for short-term gains or long-term holdings? At least one popular analyst is calling on people to hold.
Investors Should Consider Going Long on Gold, Says Chief Market Strategist
Chris Watling, Chief Market Strategist at Longview Economics, suggests that investors should consider taking a long position on gold, citing an emerging case for its potential rally. According to Watling, the recent record purchases by central banks have supported the precious metal’s price, but there is no clear correlation between these purchases and the direction of the gold price. Instead, Watling believes that gold’s price is highly correlated with a macro-driven gold model that focuses on TIPS, interest rate expectations, and the performance of the U.S. dollar.
Watling raises the question of why this correlation has broken down over the past year and a half. Some argue that it reflects significant buying by central banks, while others suggest that the distortion lies in the TIPS yield itself, potentially due to heavy selling of U.S. Treasuries by China to control the weakening of the Chinese yuan. Regardless, Watling believes that the case for gold to resume its rally is growing.
From a technical perspective, gold has returned to its 200-day moving average support level of around $1895, making it oversold. Watling argues that given the expected shift in rate expectations and TIPS yields, gold once again becomes an attractive long-term investment opportunity.
In terms of fundamentals, Watling highlights that gold is primarily driven by rate expectations, real TIPS yields, and the U.S. dollar. Longview Economics expects U.S. inflation to decrease rapidly, possibly leading to deflation, and if their view on recession is correct, U.S. rate expectations and TIPS yields should significantly decline.
On the flip side, the outlook for the dollar is less favorable for gold. However, Watling notes that the possibility of interventions in both the Chinese yuan (RMB) and the Japanese yen is increasing. If two out of three key macro factors support the gold price, it could be enough to drive the price higher.
While Watling acknowledges risks to his bullish gold scenario, such as a credit crunch similar to the 2008 financial crisis, he points to the March banking crisis as evidence that central banks are prepared to inject liquidity into the system to prevent such events. Additionally, he mentions the potential risk of dollar strength, but highlights that gold rallied in 2001 during a recession despite periods of dollar strength.
As of writing, spot gold is holding its morning gains and trading at $1915.44, reflecting a 0.95% increase on the session.
If you want an honest appraisal of your options with physical precious metals, contact Ira Bershatsky below.