For many die-hard precious metal enthusiasts, the prices of silver and gold are constantly underestimated. Argument: Prices should be much higher given the huge amount of finance capital in circulation and the obvious anti-silver and gold policy.
But keeping a financial asset at a consistently low level is especially easy only when it is not in vogue at the moment among a wide range of investors. Then a small financial market can easily be dragged down with a relatively small capital, but it can be even more harmful with a large capital. On the other hand, strong growth in demand in a segment with limited supply can also quickly lead to higher prices. Anyone trying to predict value against a bull market has little chance of success due to capital inflows into this market.
Investors should be aware of this, who may have been somewhat disappointed with the pricing of gold and silver in recent months and may have even followed the prices of the stock market with some envy. But it must be admitted that the bulk of financial capital goes to the stock market.
Do not forget that even the shares of companies cannot be issued at will in unlimited quantities (at least in the short term). The same as precious metals. Strong demand for these highly sought-after assets drives up their price. You cannot ignore this with securities, even if fundamental data contradict it dozens of times.
What about gold and silver? Large speculative capital usually looks for the path that promises the greatest returns in a short period of time. Hopes and expectations are decisive factors. Precious metals are out of fashion right now. However, speculative capital also plays an important role in the silver and gold markets. Thus, if comparatively little money is being poured into gold and silver, the bull camp is too weak to protect the market from shortists.
But one thing must not be forgotten. From an investor perspective, gold is a "fear trade." Thus, it turns out that the precious metal is indeed primarily an asset for pessimists. And special caution in matters of financial investment is fully justified, given the tense situation in the field of financial and monetary policy. Thus, the price of gold has also reached new highs in recent years. However, at $ 1,725 ​​an ounce, the price was recently about 16% below its August 2020 record.
On the other hand, we've seen stock markets hit new highs repeatedly over the course of several months, especially since the last US elections. This growth was based on growing optimism among investors to quickly overcome the recent corona crisis, as well as in anticipation of even cheaper money from central banks. There was also hope that things would work out in the end, despite continued huge increases in debt at all levels amid a weakening global economy.
What can investors expect from the gold market? A rise in the price of gold always means that the corresponding currency is losing purchasing power and that, macroeconomically, we are getting closer to financial disaster.
Looking back to August 2020, the gold price rally was accompanied by pessimistic expectations due to the corona crisis, rising sovereign debt, rising inflation and generally higher demand for defensive assets. But, in the end, the price fantasy was exhausted for a while. The “big crash” in financial markets never happened. As a result, precious metals entered a correction phase.
The conclusion suggests itself: gold is always a good insurance, but not always a good investment. A negative event associated with the collapse of the monetary and financial system will happen sooner or later. This may sound pessimistic, but above all it has to do with realism. Especially when you look at the development of earlier, fully debt-ridden financial and economic systems. For this it is not necessary to go far into the past.
Hard-core gold investors hope for the best, but expect the worst. However, if you are only betting on the rise in precious metals prices and putting all your eggs in one basket, then prolonged pessimism can lead to a prolonged dry period. This conclusion has been drawn from experience drawn from past crises and periods of history.