Confidence is slippery, even when you are a metals investor sitting atop the best performing assets of 2016. It doesn’t help when 4 years of a miserable bear market remains fresh in our memories. Any weakness in prices and it can feel like markets are getting ready to plunge right back to $13 silver and $1,000 gold.
That feeling is called the ‘Wall of Worry’, and bulls are going to have to climb it by staying in the market even if their emotions are telling them to bail. Let’s review the last 6 weeks because they are quite instructional.
June 1st: Silver closed at $15.97 and gold at $1,213. Precious metals prices stood well below the highs put in at the end of April and plenty of people declared the end of metals bull run.
There was plenty of reason to worry. At the time, markets were obsessed with Federal Reserve policy and sentiment was darkening.
The year had opened with turmoil in the stock markets. The S&P 500 was plummeting in response to a December rate hike with the expectation of more hikes to come. Precious metals surged as investors sought refuge from crumbling stocks.
In mid-February Fed officials responded to the collapse in stock prices by reversing their rhetoric on interest rates. They reaffirmed their undying commitment to growth and prosperity through freshly printed cash!
Metals got another boost and the S&P 500 took off like a rocket.
So much so that, by June, schizophrenic officials had reversed direction once again. They sounded an economic ‘all clear’ and began jawboning about raising rates. Some thought they might even get around to hiking as soon as the FOMC meeting in the middle of the month.
This post was published at GoldSilverWorlds on July 26, 2016.