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Metals Climb A Wall Of Worry – So Where Are We Now?

            Confidence is slippery, even when you are a metals investor sitting atop the best performing assets of 2016. It doesn’t help when four years of a miserable bear market remains fresh in our memories. Do you sell out and watch the price rally higher or do you buy more and the price dips. 

            Precious metals have had their best first half of the year in decades, and rocketed after June 23rd when UK voters shocked people everywhere. Stock markets crashed, turmoil engulfed the foreign exchange markets –  and the safe haven buying drove the gold price from $1,257 to $1,367 by July 8th. Silver jumped from $17.32 to $20.31 over the same period.

            Stock markets have since been attempting to shrug off the turmoil following the Brexit vote. Equity indexes have posted sharp recoveries over the last couple of weeks. Consequently, some people are declaring the end of the metals bull run, leaving investors feeling as if seeing any weakness in prices and markets are getting ready to plunge right back to $13 silver and $1,050 Gold.

            In finance, that feeling is dubbed the ‘Wall of Worry’. Investors are going to have to climb it by staying in the market and accumulate even if their emotions are telling them to bail. While Brexit stole the attention, there were a number of developments that were overlooked and that investors should weigh carefully…


            Bond markets are not confirming the move higher in stocks and continue to move lower. [For those that don’t know, as more money moves into bonds, the yield rate reduces. In other words, the more the bond is in demand, the lower the offered yield.]

 The yield on a US. 10-year bond made a new all time low recently at 1.385%, and Goldman Sachs recently forecast its expectation for it to drop to 1%. 

            The German 10-year Bunds yield -0.12%. Negative yields mean investors must pay the German government for the ‘privilege’ of lending them funds! As of July 5th, for the first time ever, Switzerland’s entire stock of bond yields had fallen below zero, with the 50-year yield plunging to -0.03%.

            That goes against the rally being seen in stocks. The heavy selling immediately after Brexit was followed by relentless buying. It seems investors are split. One camp is buying risk assets like stocks, perhaps figuring the hysteria surrounding Brexit was an over-reaction. The other is buying safe haven assets including Treasuries and metals.  They likely saw above the largely unreported news that all is not well again with global banking. Italian banks needed a bailout and Italian officials used the panic around Brexit and feared a run on their banks to lobby for the assistance. EU officials granted a $150 billion emergency bailout measure last week. Portuguese banks are not in much better shape.

            To be sure much larger banks – Deutsche Bank and Credit Suisse – are signalling the possibility of collapse as their share prices trade below the 2008 crisis lows. Last week the IMF even labelled Deutche Bank as the riskiest financial institution in the world. Deutsche holds something close to $70 trillion in notional value of derivatives exposure. It also carries alot of “non-performing” loans.


So what does all this tell us? 

            World events, like Brexit, are unpredictable – perhaps even more so lately. And in bull markets, some of the biggest movers happen suddenly, when people least expect it. Blink and you’ve missed it. So you just have to climb that wall of worry, hang on to your convictions (and your position), add to it. It’s been a stellar 6 months for Gold. The yellow metal has surged 28 percent, its best first half of the year since 1974, but as we’ve seen there are signs that the rally is just getting started.

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