Just How High Will PMs Rise? Some Numbers to Consider...18 May 2020 12:04
I'm sure we're all watching the rise in the PM (& miner) prices with pleasure, & likely no small degree of satisfaction, too. Being a contrarian investor can be a hard & lonely road at times, but it's immensely rewarding when you finally see your day. Has that day finally arrived, & just how high will precious metal prices (&, by extension, the miners) rise?
Well, let me put some potential figures on the table:-
£5,000 p/oz gold
£170 p/oz silver
And, yes: that's £s and not $s.
Crazy, right? Not necessarily. There is precedent for this. In the run-up to the GFC, gold went up over 400% (from £220 in 2005 to around £1,100 in 2011). Silver did even better, rising 700% from a mere £3.50 p/oz to nearly £30 over the same period. £170 p/oz silver now seems about as crazy as £30 silver did back in 2005...& yet it made it. I believe it will do so again.
Those of you who follow the GSR will observe that that's a GSR of around 1:30, way lower than it is ATM, but again, it's a level that was achieved in the GFC, & one that is closer to the historical average that what we have today (even after an appreciable narrowing over the last couple of weeks).
What does this mean for the miners? Well, I won't be sitting down & working it out in detail but it's clearly good news. After all, once a miner hits break-even, every £ that goes on an oz is, by & large, an extra £ of profit. The sky could literally be the limit here.
However, one potential fly in the ointment could be the unprecedented economic situation the world finds itself in ATM. Whilst this can be a positive for PMs, as we saw just a few weeks ago in March, it can still hit hard. PMs aren't rising alone. Commodities are also surging, presumably on the expectation of an economic re-bound. I believe this is a false hope & see commodities going through the floor shortly before we come out of the other side.
However, let's not forget the unprecedented level of money-printing going on in the world ATM. $2.6T last month in the US alone, & they're already talking about a further $3T. This is currency debasement on a scale never before seen, & most certainly not in the WRC. This money isn't going away. Indeed, I expect it will be added to...many times over.
We've seen a few false dawns before (March being one of them), so I am not yet euphoric, but I am HUGELY optimistic that FINALLY, we've broken out & PMs (& miners) will now run & hide. It's been a long road, but like many things, it's not just about the destination, but also about the journey. This ride just got a lot more interesting.
GLA.
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