Gold In Q1: Price Softens, But New Catalysts Emerge

Higher Taxes: While a political hot potato, President Biden proposed increasing the U.S. corporate tax rate from 21% to 28%. If adopted company profits would be impacted. It would also affect multinational companies, as it would be harder to qualify for federal tax deductions based on payments to certain foreign governments. Gold can hedge the impact higher taxes would have on stocks and even entire industries that might see lower profit margins.

Silver Outperformance: Part monetary metal like gold, but also an industrial metal whose uses will climb in the infrastructure and clean-energy spending plan proposed by Biden, this dual role could push it to advance more than gold. It’s noteworthy that despite a more volatile metal, silver fell less than gold in Q1.

The gold/silver ratio (gold price divided by silver price) ended Q1 at 70; despite the decline from its record high of 123 a year ago, the ratio is still 22% above its long-term average of 55, showing it remains undervalued relative to gold. The ratio fell to 32 in 2011.

Black Swans: The environment remains ripe for an unforeseen event. Potential candidates include unexpected delays with the vaccine rollout, a surge in Covid variants, and a stock market or real estate reversal. Another shock to the global economy would underscore the importance of gold’s hedging abilities.

The Hard Asset Hedge

The current circumstances of runaway money supply growth, rising inflation expectations, and ongoing fiscal stimulus plans creates an ideal scenario for gold.

The most likely scenario for the remainder of 2021 is one where gold and silver continue to offer meaningful and necessary hedges, along with the distinct possibility of record-high prices.

We recommend investors continue to accumulate precious metals in the current environment, one that seems increasingly vulnerable to financial, market, and monetary threats.

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