The outlook for gold and silver bullion prices has again turned to strong. Several significant factors are increasingly working in favour of precious metals as an investment.
The great sell-off triggered in late-summer of 2011 by ETFs pulling out of and liquidating huge gold and silver positions has long been digested by the markets. Prices sat in a narrow band for an extended period of time after the sell-off which made price declines appear over-exaggerated in precious metals. In fact, both precious metals kept much of their value on closer scrutiny, with gold performing not too bad in particular.
Increased Demand for Non-Paper Assets
In the intermediate term, and with the advent of Crypto currencies, some investment money looking for alternatives to fiat or paper investments had gone into Bitcoin, Litecoin, and other of the so-called virtual currencies or, rather, Crypto coins or tokens.
Basel-III Has Moved Gold to “Tier-1”
With a number of both fundamental and technical recent events, this trend in favour of Crypto seems to be reversing for a few months now. The most prominent one among these is the move of Gold Bullion in Basel III banking regulations to a tier-1 asset, up from tier-2. This means that gold held by commercial banks as a capital reserve is now an asset which is marked to market with a 100% instead of the earlier 50% of its market value when it was classed as a tier-2 asset.
Other significant factors include technical hurdles in Crypto prices. Crypto prices — most significantly shown in the Bitcoin (core) market itself — are now forming an NSW (narrow sideways-channel, or something of a plateau) from a technical point of view. This makes it increasingly hard for Crypto prices to break out and continue upwards.
Prices Bottoming Out in Technical Analysis
So far, the result of all of the above has been a bottoming-out in precious metals prices, followed by a significant turnaround, in the wake of this summer’s Basel III re-classification of commercial bank gold holdings. In the process, the gold price has broken out of its own narrow-sideways-channel between $1300 and $1430 and is currently testing the $1500 barrier. While $1500 seems to be a significant hurdle and may take some time for gold prices to tackle, once cleared the upward move in gold is likely to accelerate. Silver should then follow suit.
We have yet to see if Crypto coins will be able to shrug this off easily or whether this will drain yet more capital out of the Cryptos as an asset class and drag Crpyto market prices down further.
Editor’s note: an introductional booklet to Precious Metals investing by the author of this post has just been released as a paperback edition. It is available in the U. K. through Amazon here.