A Perfect Storm For Precious Metals

Investors apparently didn't view precious metals as a haven from China contagion or other fears this week.

A Perfect Storm For Gold And Silver

In theory, the past week should have been a perfect storm for gold and silver bulls, as the news fed investors a buffet of systemic risks. In one steam tray was China's "Lehman Moment" with the impending default of the China Evergrande Group (EGRNF). 

In another steam, tray was the "game of chicken" over America's impending debt limit. 

Nearby, investors could find steaming dish of reported hyperinflation fears by UBS clients. And right next to the croissants, were rumors of shortages of industrial parts. 

Meanwhile, the rotting apple in the fruit bowl was the seemingly never-ending COVID pandemic. 

And Yet...

Despite all that, here's how the Sprott Physical Gold Trust (PHYS) and the Sprott Physical Silver Trust (PSLV) ETFs had done over the last five days, as of Thursday's close. 

Chart

Similar picture with the more widely traded gold and silver ETFs, the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV). 

Chart

Industrial Commodities Versus Precious Metals

A point we made in a recent post (Supply-Side Inflation Hits Home), is that inflation driven by shortages in the real economy would inflate the prices of industrial commodities, but not necessarily precious metals. We made a similar point in June as well (Black Gold Beats Silver) where we noted that our recent top names had included industrial commodity companies such as Laredo Petroleum, Inc. (LPI). 

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William K. 3 weeks ago Member's comment

I DO SEE some serious inflation, coupled with stagnation in a few areas. It looks like bad times approaching.

And while Evergrande is falling, the enormity of the impact is not obvious to a lot of those who do not yet understand what is happening. The very best outcome will be if what I anticipate does not happen. Sometimes having been wrong is what I hope for.