What’s Next For Gold & Silver Markets?
A recent dip in prices has not dampened talk of the potential for a bullish market in precious metals moving into 2020.
Could we be set to witness the largest rally of the gold and silver markets in contemporary history? Market predictions are precarious exercises but several key factors that could encourage a bullish market deserve to be identified. Beyond the immediate trends impacting prices for precious metals, there exist opportunities for growth that are facilitated through emerging and innovative technologies.
Regardless of when the next bull market happens one fact is clear, technology will ensure that the next run will be different from all previous bull markets.
A Recent Dip in Precious Metal Prices
The volume of silver mined each year is much larger than that of gold. Estimates put the yearly volume of silver entering the marketplace at 1 billion ounces, compared to 120 million ounces of gold. Yet the lower price of silver means the annual value of the silver market is much smaller than gold. Current price estimates identify the annual value of gold supply as roughly 12 times greater than that of silver.
Although the price of silver has been on a general decline since its highpoint in 2011, the market prices for both gold and silver grew during 2019. The previous two months have seen a dip in the prices of precious metals and as usual, the silver market was the more volatile of the two.
From late May until early September 2019, the price of silver rose almost 35% representing a major move for such an important market. This rise bought speculative buyers into the marketplace and speculation creates volatility. After the price of silver reached a high in August there was a pullback decline in its price as a result of the destabilizing effects of speculation.
Another factor for the dip in gold and silver prices was that during the month of October, the US dollar was at its highest level in the last two years. The strength of the US dollar has a direct impact on the gold and silver markets as they are denominated in dollars. The strong dollar squeezed the prices of precious metals which are defensive assets for investors.
A further contribution to the dip in the gold and silver prices was caused by recently released data from the US manufacturing industry. Precious metals are denominated in US dollars and fluctuations in the US economy have significant impacts on the markets. The US manufacturing data was the weakest in ten years and adversely impacted the prices for gold and silver.
Sentiment Over Market Manipulations
Allegations against JPMorgan Chase & Co for spoofing the futures markets of precious metals are indicative of a wider malady that has eroded market confidence. Although the bank is claiming that the criminal activity was isolated many analysts are unconvinced and there are mutterings of systemic corruption.
JPMorgan is the largest US bank by assets and appears to have resorted to the traditional strategy of blaming individual employees and denying widespread criminality within the bank. The spoofing of markets through two decades has adversely affected the positions of untold numbers of investors and resulted in an inevitable decline in market confidence across the sector.
Observers are concerned that when crimes in precious metals markets are committed fines are paid, yet few prosecutions take place to deter future criminals. The recent charges brought against one former and two current JPMorgan executives by the US Department Of Justice are helping to restore some confidence in the regulatory system.
Perhaps these prosecutions combined with new and innovative developments in precious metal trading will help to build greater confidence in the future. The opportunities facilitated by blockchain-based security tokens may bring enhanced accountability and may help herald a new bull run in the marketplace.
A Historic Bull Market for Gold and Silver?
In this article we have identified several reasons for the recent dip in precious metal prices and also discussed the wider implications of market confidence. What are the reasons behind the predictions of some market analysts for a bullish market in the near future?
As gold and silver are traditionally defensive positions for investors a historic bull market would be triggered by an economic crunch in global fiat currency. As the US dollar is currently printed by a private central bank it inevitably creates systemic instability which manifests in recurring financial emergencies.
The handling of the financial crisis of 2008 did not address the root causes of the fiat currency problem. Rather the banks were given bailouts of public money and the system essentially continued on as before. The financial dangers of our system were not addressed by the crisis ensuring that another crisis is bound to happen in the future — the only question is when. Another economic crisis could precipitate an unprecedented bull market for precious metals as investors attempt to salvage equity.
The recent injection of hundreds of billions of dollars by the federal reserve into the repo market has concerned some analysts. This is an indication that there is a liquidity issue in the overnight repurchase market. Liquidity issues have had impacts on major banks in the past and were partially responsible for the collapse of Lehman Brothers during the last financial crisis. This has investors wondering if there are greater underlying issues in the health of the economy that may soon emerge. These concerns may trigger a move towards higher gold and silver prices as investors, wary of another financial crisis begin to move equity into precious metals.
The Future of the Precious Metals Market
Regardless of when the next bull market occurs the implementation of blockchain technology into the precious metals market will mean that innovations will facilitate greater liquidity and new opportunities.
The ability to trade security tokens backed by precious metals 24/7 and globally, provides opportunities that have not been seen before. This brings accountability for investors, liquidity to the marketplace and access to funding for miners. All these aspects greatly improve the strength of the marketplace for all participants.
Another bull market will not just mean gains for investors but will also provide liquidity for further implementation of blockchain technologies across the sector and bring wider and as yet unidentified opportunities to the space. The next bull run will be unlike anything we have seen before.
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