Insights

This year’s top 10 list offers Sprott’s thoughts on what will likely drive markets in the coming year and decade, from a macro perspective and the vantage of our asset classes: Precious Metals and Energy Transition Materials. We believe the global clean energy transition will grow more urgent as energy markets continue re-ordering and energy security becomes synonymous with national security. The signposts point to a commodity-intensive, inflationary and capital-intensive decade where energy transition materials and precious metals will become far more valued than in the prior market regime.

July was another difficult month for most asset categories and was characterized by selling capitulation into exhaustion. Much more aggressive Fed rate hike expectations relative to other global central banks were a significant cause of U.S. dollar (USD) strength and rising real yields, which adversely affected gold. Although gold bullion lost ground, it remains relatively better off than many other assets for the year at -3.46% YTD through July 31, 2022.

Gold continued to perform as a safe haven store of value in what has been one of the most challenging six-month periods for markets in decades. Gold has managed to stay above the $1,800 support level despite the broader market carnage. By contrast, equities (as measured by the S&P 500 Index) recorded their worst first-half start to a year since 1970 and bonds (U.S. Treasury Index) registered their worst first six months since 1973 (based on available data).

May saw selling across most asset classes and scant appetite for safe haven assets such as gold. However, gold bullion has outperformed many other asset classes YTD and continues to do its job. Gold held its value with low correlation to the S&P 500 and lower volatility than other assets.

Gold lost 2.09% in April, a month marked by across-the-board outflows in many asset classes as volatility surged. By contrast, gold held in ETFs has increased sharply this year as the safe-haven flight continues. April was tough on many investment sectors, with the S&P 500 Index down 8.80%, the Nasdaq Composite Index declining 13.37% and U.S. Treasury bonds falling 3.10%. The U.S. dollar was one of the few beneficiaries as it neared multi-year highs.

Gold posted its all-time highest quarterly close on March 31, 2022, ending a volatile month that helped gold climb above $2,070 on March 8. By contrast, the U.S. Treasury Index suffered its worst quarter since 1973 and the S&P 500 Index posted its first negative quarter since Q1 2020. While gold may have climbed back to its highs on safe-haven flows, other positive gold supports are definitely in play.

The precious metals complex rebounded strongly in February as other assets faltered. Gold bullion is up 4.36% YTD through February 28, 2022, and silver bullion has increased 4.90%. Gold mining equities rallied and have gained 10.17% YTD. Investors sought safe-haven assets given the heightened concerns over the economic/market risks from rising interest rates and the escalation of the Russia-Ukraine conflict.

Gold reached a high of $1,848 in January, but slid following the Fed's exceptionally hawkish statements at the January FOMC meeting. Market risks are rising and we believe that gold, as it did in 2018, is likely to stage a breakout given its safe haven characteristics.

For 2021, the gold price averaged $1,799 compared to $1,770 for 2020, up $29, despite losing 3.64% for the twelve months. Gold traded in a narrow range for most of last year as markets were ping-ponged by inflation and rate hike expectations. Based on historic patterns, gold's lengthy consolidation indicates that prices have the potential to rally sharply and quickly in the coming year. We explain why in our List of Top 10 things to watch for gold investors. 

Gold investors are certainly ready to say goodbye to Groundhog Day $1,800. The good news is that the degree to which macro risks and headwinds are piling up is considerable. When juxtaposed against a near positioning wipeout for gold bullion, we are confident the year-long correction in gold is near its end.

Spot gold closed October at $1,783.38, gaining 1.50%. Gold managed to recover from the late September swoon that cleansed positioning and sent the entire precious metals complex into extremely oversold conditions. Gold may have priced in the Fed taper, but the yellow metal has yet to respond to the Fed’s inflation dilemma, which seems anything but transitory.

September’s end brought on a new season and a welcomed uptick in gold prices with a settle at $1,757 per ounce. While gold struggled for the month, its positive finish reflected the uncertainty of recent macroeconomic progress. Gold mining stocks were harder hit in September as markets appeared to be factoring in a price-side and cost-side margin squeeze.  

Gold closed August at $1,814 with a dramatic dip early/mid-month and a quick recovery. Improved July payroll job data gave traders reason to question whether the Fed will maintain its easy monetary stance. Gold sold off but regained support, helped at month end by the Fed's dovish tone at Jackson Hole. 

Gold bullion and gold mining equities gained ground in July. We saw a recovery in gold bullion investments as positions were repurchased and the decline in real yields to all-time lows added to the buying rationale. We believe that gold is well-positioned for a typical late summer/early fall rally, given record-negative real yields, a USD that may be topping out and waning taper/tightening fears.

Gold and precious metals took a drubbing in June following the hawkish FOMC meeting that added two rate hikes to the dot plot. Chaos among most asset classes ensued and gold was unduly affected by the strengthening USD and rising real yields. This doesn’t change gold’s long-term fundamental tailwinds, given the unprecedented expansion and reach of monetary and fiscal policies, akin to a grand experiment.

Gold's strong performance in May made up for the Q1 correction. Rising U.S. CPI data spooked markets, but helped boost gold and silver prices. As we head into summer (a seasonally strong period for the precious metals complex), we see several macro tailwinds working in our favor. 

April provided precious metals markets redemption from a challenging first quarter, with gold finishing the month up 3.60% and silver climbing 6.14%. Silver continues to benefit from expansionary monetary and fiscal policies worldwide and its key industrial role in the new technologies of the "green revolution." 
 

Gold prices finished March at $1,708, closing off a difficult quarter on the heels of gold's positive, record year. COVID-19 vaccine rollouts in the U.S. encouraged market optimism which was reflected in rising U.S. Treasury yields and a strong U.S. dollar. Despite the cheerier economic outlook, the long-term risks associated with trillions of dollars of economic stimulus, and mounting debt, provide ample support for our bullish metals outlook.  

February was a tough month for gold. Bond selling spiked into near panic mode and triggered a multi-asset sell-off into month-end. It was an uncomfortable replay of the 2013 Taper Tantrum in condensed form. Gold was not spared, but long-term trends remain in place for our bullish gold view.

Gold started the year strongly, reaching almost $1,960 before dropping quickly back to support above the $1,800 range. We have been long-term bullish on silver, which has surged to an 8-year high. The Reddit crowd may accelerate this silver rally to extreme levels, but we can continue to make a strong fundamental case for silver that does not require any short squeeze schemes (real or imagined). 

2020 was a tremendous year for precious metals. Gold bullion gained 25.12%. Silver bullion rose 47.89%. Palladium climbed 25.86% and platinum increased 10.92%. Gold mining equities were up 21.96% and gold junior mining stocks rose 48.53%. We expect the precious metals rally to continue in 2021 and offer our Top 10 list for investors. 

Precious metals took a post-election pause in November. Gold bullion lost 5.42% but is up 17.11% YTD and 21.38% YOY through November 30, 2020. Silver bullion lost 4.28% in November but has risen 26.84% YTD and 32.99% YOY. The macroeconomic fundamentals remain intact to support a continuation of this year’s precious metals rally. We see this correction as an attractive yearend, seasonal buying opportunity. 

Markets experienced the first post-COVID meaningful correction in September as investment fund exposures were reduced, resulting in a contraction in market depth and liquidity. Despite September's profit taking, gold bullion posted its eighth straight quarterly gain. We see this as a buying opportunity for precious metals investors.

After touching a record high of $2,075 on August 7, gold bullion closed August at $1,968. Despite this pullback, we see gold well supported above the prior cycle high of $1,900 as it settles into a sustainable $2,000-$2,200 trading level. Both silver bullion and gold mining equities reached multi-year highs in August.

The precious metals complex set off fireworks in July as gold bullion reached all-time highs. Silver bullion and gold mining equities broke through significant long-term resistance levels to further improve their bullish standing. Year to date, precious metals continue to outperform as gold has attained “escape velocity”, i.e., it has gravitationally moved away from other asset classes.*

Gold bullion continued to deliver strong performance and was up 17.38% YTD through June 30, 2020, and 26.36% YOY. At the same time, gold mining equities have gained 25.88% YTD, and 44.00% YOY as of June 30. This compares to -3.08% YTD and 7.51% YOY returns for the S&P 500 TR Index. Silver posted strong gains in June and is on the move again; silver is up 1.99% YTD and 18.88% YOY as of June 30.

After a tumultuous past few months, every asset class appears to be normalizing, including gold bullion. Gold posted steady gains in May with a 2.6% increase. Gold is up 14.04% YTD through May 31, 2020, and 32.54% YOY. At the same time, gold mining equities have gained 18.26% YTD, and 61.70% YOY as of May 31. This compares to -4.97% YTD and 12.84% YOY returns for the S&P 500 TR Index. Silver also posted strong gains in May and is on the move again. 

Gold equities broke out of a multi-year resistance level on massive buying flows in April. Gold miners may be experiencing disruptions due to COVID-19 pandemic shutdowns, but they stand to benefit from a rising gold price. Gold bullion is up +11% YTD and +31% year-over-year (through April 30, 2020). 

March 2020 will go down in history as one of the most tumultuous ever for capital markets. For the first time in over 100 years, a global pandemic has struck with devastating results. Gold continues to deliver strong relative performance and was up 3.95% on a year-to-date basis through March 31, 2020, compared to -19.60% for the S&P 500 TR Index. The need for a safe haven asset like gold, that represents a store of value during crises has never been greater.

The Fed made a surprise interest rate cut of 50 basis points on Tuesday, March 3, and gold bullion closed the week higher, above $1,670. This follows gold's February breakout from the critical $1,585/$1,600 overhead resistance range that we have highlighted for several months. 

Gold bullion rallied 4.7% in January, on the heels of 2019's 18.31% rise. Our 2020 Top 10 Watch List outlines what gold investors should pay attention to given our long-term bullish outlook for the precious metals complex. 

2019 marked the best performance for the precious metals complex in nearly a decade. Gold bullion closed the year at $1,517 (gaining 18.31% for the 12 months). Silver bullion ended the year at $17.85 (up 15.23% in 2019). Platinum climbed 21.56% in 2019, and palladium soared 54.24%. Gold mining equities showed notable strength, finishing 2019 up 46.97%.

November marked the third month of consolidation for gold bullion and gold equities. We see this as a pause in a long-term bullish trend: YTD gold bullion has gained 12.69% and gold equities are up 33.35% as of 11/30.

Gold bullion consolidated in October, closing the month at $1,513, a 2.75% gain; YTD gold is up 17.97% as of 10/31/19. Silver bullion rose 6.55% for the month and has gained 16.86% YTD. As gold companies report Q3 earnings in the coming weeks, we expect robust earnings results to lift gold equity prices. The timing may be favorable as we are also heading into the best consecutive four-month seasonality pattern for gold mining equities.

Given gold’s sharp rise since May, September’s correction was not unexpected. We believe it is reflective of a new consolidation phase, and likely to be short term in nature. All factors that we consider to be significantly correlating to gold bullion indicate that we are still in the early stages of a major long-term advance.

Gold added $110 in August to close the month at $1,524, gaining 7.8% for the month. YTD gold is up 18.6%, ahead of the S&P 500 Index's rise of 15.34%. Gold equities impressed even more, climbing 46.4% YTD.