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Gold & Silver Grow Stronger with Fears of Worsening Downturn

Posted By Isaac Nuriani |

Following an impressive second quarter, gold moved up another 13% in July and silver skyrocketed 34%. Now we’re in August, and both metals continue their surge. The speed and power with which gold and silver prices are rising brings up the following question: Could this be a precious metals bull market the likes of which has never been seen before?

On the other hand, the force of this sharp upswing has some pondering whether they’ve already missed the boat. It’s an understandable concern, given the tremendous gains each metal has logged in a short period of time. It’s important to look past the headlines and recognize the real source of precious metals’ energy right now: (1) massive amounts of dollar-debasing Federal Reserve asset-buying and (2) government deficit spending initiated to reverse the economic damage caused by the pandemic.

There appears no end in sight to the pandemic or its economic fallout. That’s why I’m not put off the idea of further gains by either metal. I say this even as gold has recently sailed upward through its nine-year all-time high of 1,923 dollars per ounce. Now that gold is above 2,000 dollars per ounce, it makes sense that we might see some sideways movement (consolidation) as traders reevaluate their positions.

But consolidation is not the same thing as a trend reversal. The root conditions driving precious metals are intensifying, and concerns are growing that the worst is yet to come for the economy. It is, therefore, unlikely that the energy fueling gold and silver right now will suddenly evaporate.

Fed President: “Much Slower Recovery” without Another Nationwide Lockdown

Economists have said since the beginning of this pandemic debacle that as the outbreak goes, so goes the economy. In other words, unless there is genuine virus containment, there will be no reversal of the economic misfortune that has energized precious metals.

But the prospects of containment are murky, at best. As Americans argue about the usefulness of public health protocols, infection numbers grow worse by the day. When July began, there were roughly 10.4 million confirmed COVID-19 cases worldwide. By the time July ended, that number had grown to 17.6 million. The U.S. has the dubious distinction of being the nation with the highest number of infections – around 4.8 million presently. That figure grew more than 70% in July. There have been more than 700,000 deaths worldwide attributed to the virus. The U.S. also sits on top of the list of deaths per country, with roughly 160,000 COVID-19-related deaths as of this writing.

Minneapolis Federal Reserve Bank President Neel Kashkari believes the best solution to the pandemic and the associated economic turmoil is another nationwide lockdown. He said so during a recent appearance on CBS’s “Face the Nation.”

“That’s the only way we’re really going to have a real robust economic recovery,” Kashkari said. “Otherwise, we’re going to have flareups, lockdowns and a very halting recovery with many more job losses and many more bankruptcies for an extended period of time, unfortunately.”

Kashkari is well aware of the unpopularity of reinstituting lockdowns, particularly in the Land of the Free. However, this economist fears the long-term economic consequences will be worse if the nation tries to “manage” its way through the pandemic without lockdowns. According to Kashkari, businesses of all sizes will be at grave risk for years if the nation remains resistant to revisiting mass lockdowns.

“We’re going to see many, many more business bankruptcies – small businesses, big businesses – and that’s going to take a lot of time to recover from to rebuild those businesses and then to bring workers back in and re-engage them in the workforce. That’s going to be a much slower recovery for all of us,” Kashkari said.

CBO: Pandemic’s Economic Effects Could Be with Us Through 2030

Unfortunately, widespread lockdowns are not without their own tremendous economic costs, as we all know by now. They might be the surest way to bring the pandemic under control, but the economic price tag of widespread lockdowns can be huge. According to Yahoo Finance, the lockdowns were responsible for a 32.9% reduction in U.S. gross domestic product (GDP) in the second quarter. That’s the worst-ever contraction of the U.S. economy in recorded history.

And we’re at a point where, even if a vaccine was available today, it still would take years for the economy to regain full strength. According to the Congressional Budget Office, the economic effects of the pandemic potentially may be felt through 2030. Which means the longer any containment measure remains out of reach, the longer we can expect the economy to remain in dire straits.

To be clear, I’m not an evangelist for one virus containment approach over another. Rather, I want to underscore just how far we have to travel to economic recovery, even under the best circumstances. I also want to suggest to retirement savers that, because of the situation we’re in with the pandemic, it still can be safe to wade into the precious metals waters, in my opinion.

Gold and Silver to Hit Astronomical Prices on Virus Woes Says Analyst

Despite the strong runs we’ve already seen in metals, there’s no good reason to believe this current precious metals bull market will end anytime soon. The conditions that are demanding unprecedented Federal Reserve quantitative easing (QE) measures and record federal deficit spending appear as though they’ll be with us for years.

It is for this reason – among others – that one analyst is projecting gold and silver will reach eye-popping price targets in the relatively near term. Devlyn Steele is the senior economic analyst at Augusta Precious Metals and a member of the prestigious Harvard Business School analytics program. In a recent alert video, Steele announced his updated 36-month price targets for gold and silver. Steele says he expects gold and silver to reach 5,000 dollars per ounce and 125 dollars per ounce, respectively, in that time frame. Despite the fact that gold and silver already have been soaring, Steele says, “This [precious metals] bull run is just getting started.”

As robust an outlook as that is, some analysts see even bigger gains ahead for gold. Dan Oliver, founder of Myrmikan Capital, foresees gold hitting 10,000 dollars per ounce. In a recent interview excerpted at Energy & Capital, Oliver said:

The Fed, as you know, has been on a massive purchasing spree because of the virus situation, and so, therefore, the equilibrium price of gold is going up commensurately, and so the numbers now to balance that balance sheet are enormously high. My [forecast for gold prices] has changed. I’m at $10,000 now.

There is, in fact, no shortage of experts predicting much-higher prices for gold and silver. This consensus view is not the number-one reason Americans should feel optimistic about the outlook for gold and silver – but it adds power to the argument for precious metals as a portfolio asset. Ultimately, it’s the reality of our current economic circumstances that inspires this confidence on the part of the experts. The “Part B” to these circumstances includes the drastic fixes both the Fed and the government likely will have to implement for years to come. It is the combination of current economics and QE that bodes well for precious metals.

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