Fear and greed drive the precious metals markets, but there hasn’t been much of either pushing gold and silver prices lately. Investors have grown tired of worrying about geopolitical events, ever increasing federal debt ceilings and ever inflating equity bubbles.
Meanwhile, greedy trend traders continue piling in to hot markets.
With the exception of palladium, metals prices have been stagnant for most of the year. For the time being, gold and silver are looking pretty boring relative to the hefty gains in stock prices and the explosive rise in Bitcoin.
Goldbugs are still waiting for a catalyst to shift investor attention back to the metals markets. Let’s take a look at some of the possible near-term drivers for gold and silver...
The equity markets remain overdue for a significant correction, and that would definitely stir some safe-haven demand. Yes, we have been expecting a correction in stocks for some time and prices are still moving higher.
There is, of course, no telling when the next bear market in stocks will arrive. But price-to-earnings valuations have only moved higher into nosebleed territory and shares are truly priced for perfection. A good-sized hiccup could have investors heading for the exit.
Bitcoin prices may also correct, diverting some of that capital instead into gold and silver. Cryptocurrencies are an entirely different kettle of fish when it comes to valuation. If Bitcoin can deliver on its promise to revolutionize payments and finance, today’s prices will ultimately look cheap.
However, no one should expect Bitcoin to continue moving higher in a straight line, with price corrections measured only in days or hours. There are a couple of developments right now with the potential to derail the extraordinary bull run in Bitcoin – at least temporarily.
A number of major cryptocurrency exchanges have grown reliant on a token called “Tether.” The Tether token is supposed to be backed 1 to 1 with U.S. dollars held by the company behind the Tether. Traders swap Bitcoin and other coins into Tether, assuming it is akin to cash. However, there are serious questions about whether or not the backing exists.
If confidence is lost in the nearly $1 billion of Tether tokens floating around exchanges, much of which has been used to make leveraged purchases of Bitcoin, it could be a disaster rivaling the collapse of Mt. Gox.
Bitcoin is also getting a boost in anticipation of institutional money pouring into the markets. The CME Group (COMEX) will launch Bitcoin futures trading later this month and lots of people expect the influx of capital to be very good news for the price. Our perspective is a bit different given that the nearly unlimited supply of paper futures contracts has undermined precious metals prices.
We think Bitcoiners should be wary of the participation of establishment institutions, such as JPMorgan Chase, which are likely to heavily short Bitcoin. These banks have a record of defeating limited supply by selling paper contracts in unlimited quantity and profiting as prices fall. People should also understand that many of the institutions who will be playing in Bitcoin futures are not fans of Bitcoin.
There are also a couple other developments of particular interest for metals investors in the coming weeks. Tensions with North Korea and Iran are still escalating. And Michael Flynn, President Donald Trump’s former National Security Advisor, has taken a plea deal. The President’s many enemies in Washington DC are hoping Flynn will testify to some impeachable offense.
Should these players finally hang something serious on the President, we can definitely expect some turmoil in conventional markets.
It is quiet in the metals markets now, but there are plenty of ways for this quiet to be broken at any time.
By Clint Siegner, Money Metals Exchange