Gold And Silver: What Is the Outlook Before End Of 2021?

The last passage of 2021 is being marred with growing inflation, high energy prices, and waning fiscal stimulus. Amid this outlook, gold and silver investors are weighing how are they going to play their last cards in the remainder of the year, and those last-chance hunters might be in for a surprise come December. 

How do gold and silver pan out for the upcoming weeks and what are the main expert predictions?

A Nebulous Stage

In the first half of this year, there was a strong economic rebound. The recovery momentum, however, is now looking leggy as a result of the supply chain crisis, and the soaring prices in energy and consumer products –the talk of bonanza after the Covid crisis sounds now muffled. 

“Overall, there are fears that there is a stagflation environment, that is, of low growth and high inflation,” warns Sean Markowicz, head of strategy, studies, and analysis at Schroders. 

The price spike scenarios are always favorable for gold and other precious metals, while commodities have historically served as an excellent hedge against inflation. 

According to Nitesh Shah, chief analyst at WisdomTree, “The correlation may not have been as close with gold as it has been for almost every period with commodity baskets. Although in the 1970s, when inflation became particularly high, gold did a great job of acting as a hedge against increasing price pressure.” 

Looking at the results, commodities have a greater boost in times of inflation than any other asset class, including gold. 

Gold, Above Psychological Level 

“Anyway, gold has had a very strong inflationary beta, which is several multiples higher than that of stocks,” says Shah. This means that, although commodities follow inflation’s upward trend, they also follow it when it’s on the way down.

In contrast, gold tends to track inflation only when it rises, resulting in a smaller beta overall. 

Various asset classes respond to expected inflation, which generally arises from monetary conditions and how strong demand is perceived in the economy. 

Indicating a positive tide for gold, Shah says: “Although most asset classes tend to react much less to this type of inflation, commodity prices have a direct connection to many supply-side shocks –which makes them a superior hedging instrument against inflation.”

The scenario means that gold can have everything in favor –even more so in the long term. Shah says that “From a technical point of view, the future of gold due in December is trading above the psychological level of $1,850 after rising more than 1.30%, once the inflation data of the U.S. was disclosed.”

If gold manages to sustain this level, investors could be facing a new upward momentum in the precious metal, after remaining within a lateral range in the last four months.  

“The gold situation will continue to attract investors’ eyes as inflationary tensions continue, with the greatest challenge of breaking the $1,900.0 barrier, levels tested last June.” 

Silver On The Up

In the case of silver, the improvement in manufacturing activity is positively affecting this metal, whose 50% of use corresponds to industrial applications. The growth in silver inventories must be thrown into the equation as it indicates greater availability and therefore an impact on its price. 

Shah believes that the profitability of silver will be higher than that of gold, as its value is set to rise by 37.5% in the next 12 months. 

“For the second quarter of 2022, we expect an ounce of silver to trade around $38.81, benefiting from the positive effect that the rebound in industrial activity will have on its demand,” he predicts. 

“Likewise, the contraction of capital spending in mining and the reduction of silver inventories in the stock market point to a restriction of supply.” 

Further, the value of silver can also be boosted by an environmental economic recovery. A renewed focus on meeting climate targets will intensify the electrification of transportation and increase the demand for photovoltaic energy –both trends are expected to have a positive impact on silver demand.

Disclosure: No positions

Posted In: CommoditiesMarketsTrading IdeascontributorsGoldSilver
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