Precious metals: Trend analysis

The price of gold shows a very positive behavior, but unnoticed by investors as a result of the behavior of the SP500 via technological companies. This fully recovered the observed devaluation in March and shows: i) maximums similar to 2020 (with a + 12% appreciation); ii) the 2013 levels; and, iii) 15% of the historical highs of 2011 ($ 1950 / ounce). In fact, the analysis of performance in any currency registers historical highs.

What is the reason (s)? Precious metals are usually based on three pillars: feeling, trend and fundamentals. In the sentiment, the difference is in the degree of media coverage versus investor enthusiasm in traditional markets; and, the universe of precious metals, with evidence of multi-year maximums, does not yet incorporate exaggerated emotional responses. Gold is still scorned by most investors in their portfolios for historical or cultural reasons.

The trend of the pattern exhibited by the evolution of the price of gold could not be more constructive; the price is higher than the main medium and long-term moving averages and there are no signs of potential inversion points. The likelihood of reaching the 2011 highs is high.The fundamental pillar is structured around the response of political and monetary authorities worldwide to minimize the impacts of the pandemic. The macroeconomic scenario is ideal for the positive behavior of precious metals. Otherwise let’s see:

  • interest rates close to zero and/or even negative, which can promote the liquidity trap! Although the marginal impact is smaller the closer we are to zero, the truth is that the global response recognizes a level of “exhaustion”
  • if the previous scenario persists, negative interest rates, historically the greatest valuations in precious metals have been verified (for example, in the time gap from 1971 to 1980 the price of gold rose from $35 to more than $800/ounce). This scenario requires the return of inflation
  • with the focus of markets and monetary authorities on continuous deflation, the risk of an “inflationary surprise” grows exponentially

As the pandemic has exposed the fragility of value and supply chains in numerous sectors and their sustainability, a setback in the globalization process is expected; or, at least an ethical reassessment of its principles.