Gold & Silver Prices Reached Long-Term Support Levels

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Last Friday, Gold closed at $1,782 per ounce, down $90 (4.8%) for the week. Breaking below the key $1,800 support level, a 6-month low, is not a good indicator. After dropping from $1,960 in early November, Gold is on a short-term downtrend that could reach the long-term $1,750 support level. I didn’t think that Gold could reach its long-term support level, because I believed that Congress would pass a major COVID-19 stimulus bill before the election, causing Gold to move back above $2,000, and clearly, I was wrong.

Years ago, I had a hard time understanding how financial market players think and particularly what motivates mutual fund managers and large financial institution executives to make major buy and sell decisions. It was explained to me by a major player that the stock markets move 6-12 months ahead of what analysts think will happen. If these professional traders think that current developments will lead to a recession, they will sell/short selected equities that will have the worst reaction to a recession.

I don’t believe the current major pandemic changes that thinking. In February 2020, the possible severity of the COVID-19 made major news around the world. On February 14, the DJIA was at 29,398.08. By March 20, the DJIA dropped to 19,173.98, a 10,224.10 point (34.7% correction) in a month. What were the stocks sold that caused this sizeable drop? Publicly traded travel and leisure stocks (i.e. airlines, cruise ship lines, hotel chains, restaurant chains, rental cars, casino companies, etc.). What were the publicly traded “Stay at Home” stocks they purchased? Netflix, Peloton, GrubHub, Zoom Video, Amazon, etc.

During that five-week period, cities and states were issuing shutdowns and curfews as the pandemic spread, and travel and vacation stocks saw a sharp drop in their revenue, while "Stay at Home" stocks soared.

So, what happened last week? On Monday, we had another vaccine announcement that a third vaccine is on the way soon. Biden announced a cabinet selection of Janet Yellen as the next Secretary of the Treasury. This initially provided confidence for the financial markets and temporarily caused the safe-haven demand for Gold to decline. It is strongly believed that Janet Yellen and Fed Chairman Powell will be highly likely to agree on trillions of dollars for a COVID-19 relief package. The stimulus money/aid will not just be from Congressional legislation, but also directly from the Federal Reserve. What happened last week in the financial markets? The beaten-down publicly traded “Travel and Leisure” stocks soared as the DJIA hit an all-time high, while “Stay at Home” stocks and precious metals sold off.

So, who will see the bulk of the money? Other than states, cities, hospitals, and first responders, the money will provide massive aid to the large publicly traded travel and leisure companies as well as retailers and restaurant chains. While many of the smaller neighbor businesses are going out of business and their assets are being purchased by the larger companies. My favorite vacation condo in Lahaina, Hawaii was just purchased by Hyatt. Five of my favorite local neighbor restaurants and retailers will be closed by the end of the year. I believe this is happening throughout the United States as thousands of small, non-essential businesses have been closed or assets purchased by large companies. The larger publicly-traded businesses will survive, pickup sizeable market share, and be highly profitable in the coming years.

The following is a short list of some well-known retailers and restaurant chains that have filed Chapter 11 bankruptcy protection this year because of the pandemic: California Pizza Kitchen, Sizzler, Ruby Tuesday, Brio Italian Mediterranean and Bravo Fresh Italian restaurant chains, Ann Taylor, Lane Bryant, Brooks Brothers, Neiman Marcus, J.C. Penny, Papyrus, True Religion, J. Crew, Pier 1, Lucky’s Market, Modell’s Sporting Goods, GNC, The Paper Store, and Guitar Center.

What is happening right now reminds me so much of the October 2008 financial crisis. The initial concerns of that crisis causing a massive depression were put aside within a few weeks. The Federal Reserve came to the aid, providing immediate funding for most large financial and industrial corporations. At the same time, the price of Gold, which was trading at $900 on October 7, 2008, dropped 20% to $720 by October 24, only to come back to $880 per ounce by year-end. Whether the Fed and Congressional COVID stimulus financial aid comes this year or after January 20, it will be massive as it is happening around the world. With Gold currently trading under $1,800 per ounce, it will look like an extraordinary bargain.

Today: This morning, excellent vaccine news outweighed a drop in the U.S. dollar (below 92) to a 2-year low, in determining the value of Gold. Gold reached a low in early trading of $1,765 before finding serious support and seeing a $15 rally.

Silver also suffered a sell-off last week, dropping $1.81 (7.43%) to close at $22.55 on Friday. This is the lowest Silver price since July 21 and represents an extraordinary value considering the massive amount of currency being released worldwide. As the world’s key economies start to return to normality early next year, the inflation rate will surely start to spiral higher. The Silver-to-Gold ratio has increased to 79-to-1.

Today: This morning, Silver broke down with Gold, briefly dropping below the key $22 per ounce support level, before finding bargain buying that resulted in a $0.60 rally. Heavy demand for the popular Silver investment coins could probably cause shortages/delays in the near future.

Thank you Barry + David StupplerMintStateGold.com by Stuppler and Company [email protected] 1-888-454-0444
	Barry Stuppler Founder + President	David Stuppler Managing Director
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