It is no secret that the bull run has spelled trouble for precious metals, especially the likes of silver and gold. The two flagship precious metals have been taking a hit for quite some time now, as investors continue to exit their positions in the hard assets for greener pastures in the equity world. Now, both of these commodities are sitting at multi-year lows, leading investors to wonder what their future holds [for more commodity news and analysis subscribe to our free newsletter]:
Gold and Silver Face Headwinds
There have been a few factors that have combined to cause gold and silver to feel a pinch. One of the biggest drags has been the performance of the U.S. dollar as of late, as the greenback has been surging higher. A stronger dollar puts pressure on commodity prices across the board, including silver and gold. Demand for the metals has also waned, as investors have been moving money into the raging bull market (as mentioned above). Gold itself has seen demand problems as large consumers like India have begun to slow down the amount of the yellow metal they purchase each year.
Finally, the Fed is exiting its QE (quantitative easing) program, which has been seen as a major catalyst for gold and silver’s surge in earlier years. All of this has translated into four-year lows for gold and five-year lows for silver. Here is a chart of how silver and gold have performed since 2008 (as represented by the SPDR Gold Trust (GLD) and iShares Silver Trust (SLV)):
Both metals were able to make a nice run up through 2011, but eventually lost ground as it was clear that the positive momentum on Wall Street was not going to let up anytime soon. To give you a better idea of how investors have treated these two metals, GLD has seen massive outflows of $21.4 billion since 2012 while SLV has actually seen inflows of $1.1 billion. This is not surprising, given that gold is used widely by speculators and traders who likely exited their positions as it began to sink.
The Future of Precious Metals
Judging by the inflows to SLV, investors still have faith that silver will turn it around soon, as it is sitting at lows not seen since 2009. Gold, on the other hand, may still have a bit to fall and confidence in the metal seems to have all but disappeared. The two metals should get a boost in coming years as many have predicted that inflation will begin to tick up after maintaining a minuscule pace over the last few years [see also 50 Ways To Invest In Gold].
It seems that the future of the two metals will rely heavily on how the equity market shapes up from here. If we experience a prolonged correction or pullback, it is likely that gold and silver would begin to see a jump in demand and price alike. But for as long as the bull run continues it seems that these metals are nothing more than an afterthought as far as investors are concerned.
The Bottom Line
If you are an investor who feels that markets are over-extended and perhaps due for a correction, these metals may be sitting at bargain prices and could be an enticing play. However, if you are of the mindset that equities will continue to roar higher, gold and silver may not be an ideal place to put your funds.
Disclosure: No positions at time of writing.