Cordier: Gold and Silver rally will be short lived
Good afternoon. This is James Cordier with OptionSellers.com with a market update for July 7th. During our last update, I ventured a guess that when we look back on the months of June and July that we’re going to see that commodities and commodity volatility likely hit a crescendo. With the Brexit now behind us and the dust starting to clear, at my desk it’s starting to look more and more likely that that’s going to be the case.
Coming November and December, we’re going to look back on June and July and that was quite an event. The volatility that spiked during this event was likely the high of the year. 2 things that we know now about the Brexit now that it has come and gone is: 1) Owning commercial real estate that houses banking in London is probably not feeling very good right now. 2) The other thing that we’ve learned from it is an already sluggish global economy is going to likely slow even more because of the deals that Great Britain had with the rest of the world, and they’re apt to be re-written. In some cases, they won’t be rewritten at all.
3 or 4 things that are going to come out of this that we see going forward for the rest of the year is this: Copper prices. 3 or 4 years ago when gold and silver prices were spiking to levels not seen in a long time, they were nearly $5 a pound. Currently, they’re sitting around $2. When gold and silver prices spiked to very high prices several years ago, crude oil was at $110 a barrel. With a slow global economy, we see that getting down to around $35 later this year. This environment is very deflationary.
Quite often, a lot of investors look at gold and silver as being currencies, and maybe during some cases they are, but eventually gold and silver are hedges against inflation, they’re barometers of higher prices or lower prices, and it looks like in the end of 2016 we’re going to have lower prices for a lot of commodities. Can gold rally during a situation like this? I suppose it can. If it does, it will be the first time its ever done since I’ve been watching it for over 25 years. We don’t think that’s going to be the case.
Volatility in gold and silver spiked dramatically over the 3-day weekend, as Chinese were buying silver hand over fist, pushing the market up, limit-up 3 days in a row. We think that simply silver, which started out 3 weeks ago at $17 and $18 an ounce, maybe was slightly underpriced. There were some ration traders that were thinking that silver was underpriced vs. gold, and maybe it was. Fair value of silver, we think, is around $19-$20 with a very easy FED. We have jobs numbers coming out today at a lot of movement will be significant in the market, no matter how that plays out. We see the gold and silver market probably hitting a crescendo at this level.
Later this year, we see commodities and inflation very, very low. We think that gold and silver will track them quite closely. When volatility hits the market, it’s very interesting and sometimes scary for a lot of players in the market. It is truly low-hanging fruit and you have to look at it that way. We’re long-term traders and long-term investors, and at the end of the year, we think that is going to play out quite well.
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