Do stocks also belong to the category of stable investments or is the rally since mid-March mainly based on the unprecedented liquidity injections by central banks and governments? Even if indices such as the DAX are in sight of their record marks and technically run upwards, there are growing doubts about the sustainability of the upward movement. The fundamental valuation light now shines deep red not only for the hyped technology stocks.
Silver and, above all, gold are seen as crisis-proof and stable investments. “Given the unprecedented bailouts by the central banks, confidence in the currencies is declining,” said Gil Shapira, chief strategist at the broker eToro. “In addition to the devaluation of money, precious metals are also benefiting from the skyrocketing public debt and there is no end in sight for the spiral,” added Shapira. Just a few days ago, the EU agreed on a 750 billion euro package of Corona aid, 1.8 billion is to be paid by 2027. Euros to be distributed.
The race has started
After the EU has decided on the largest financial aid in its history, the ball is back with the Americans. The signs of a new trillion stimulus package are already growing. Governments are trying to support the domestic economy with ever larger aid measures so that they emerge as winners from the corona crisis. Finally, the course is now set for the future.
Europe currently appears to offer better prospects in this race. A look at the euro / dollar exchange rate is enough. The common currency has been appreciating by almost eight percent since mid-May and has been at the highest level since the end of 2018. Investors are again buying more heavily on the old continent.
Is inflation coming?
“The weak dollar plays gold in the cards as well as falling interest rates on the bond market,” explains Funda Sertkaya, managing director of the precious metals trader Ophirum. She refers to the numerous government bonds with negative yields, which have recently increased to more than $ 13 trillion for the first time since March. Negative interest rates could also become increasingly a reality in the United States. Since gold does not generate any interest income, it increasingly loses its yield disadvantage compared to bonds. In the medium term, inflation is also likely to come into focus. So far, inflation has not yet started due to weak demand, although the central banks are already taking countermeasures. But a look in the rearview mirror shows that periods of weak price development and deflation were followed by periods of high inflation.
The only question that remains is whether the global economy will recover from the Corona shock as hoped. The recent rally in silver shows that an increasing number of investors are betting on such a scenario. Rising inflation and economic strength are a perfect environment for silver because, unlike gold, the precious metal is much more involved in the economic cycle. Silver is needed in electronics for mobile devices, microchips and vehicles and is a component of electrical contacts such as semiconductors and multilayer ceramic capacitors.
In addition, silver has developed significantly worse than gold in recent years. The gold-silver ratio provides information about this: over many years, investors paid around 65 ounces of silver for an ounce of gold. At times the factor soared to 125 in March and recently fell to a good 80. Silver is therefore still cheap compared to gold. A ratio of 50 would not be a surprise after the exaggeration in the spring of the next few months, provided that the economy plays along. Otherwise, gold is likely to show strength again soon and is likely to rise quickly above the record high of $ 1,921 in 2011.
Daniel Saurenz operates the stock exchange portal Feingold Research. It offers a daily market letter, which you can test free of charge for 14 days. Register at Info@feingold-research.com or try the exchange service at this link