Gold and Silver Free-fall Provides Opportunities for New Investors

Gold and silver were both at record all-time highs until both went into virtual freefall. Last Wednesday, gold traded down almost 6 percent. Silver had, up until recently, been outperforming gold. However, the precious metal lost nearly three times more in percentage terms than did gold, closing down almost 15 percent.

With such a dramatic decline in a single trading session, one would wonder why some believe the move created huge opportunities for current precious metal traders. The sharp decline may have also provided those who were not participants in the recent rally in both metals a second chance.

Many experienced analysts and traders have been waiting for this to happen, anticipating a dramatic move from record highs to lower pricing. With the marketplace becoming so crowded, the writing was on the wall, although there was no date on the memo. To analysts, the dramatic rise in prices meant there was a likely chance that both would make an exciting and rapid retrenchment from the current record levels.

The 2008 Banking Crisis vs. the Current Pandemic

The fundamentals behind the rapid escalation of gold and silver prices are very different from those that created the 2008 banking crisis. In both scenarios, the contraction in the economy and the recession was then, and is now, being followed by quantitative easing on the part of the Fed. In the case of the 2008 financial crisis, there was an endgame and a clear timeline. This was so because it was possible to curtail and control the issues that fueled the crisis in the first place were. The quantitative easing had both a timeline and, perhaps more importantly, an exit strategy.

The current crisis is different. The entire planet is facing a pandemic that does not appear to have a defined ending. As the global death toll continues to climb, the introduction date for an effective vaccine is little more than an educated guess by those who know best.

The Fed Is in the Fight for the Long Haul

Federal Reserve Chairman Powell has stated that the Fed is in this for the long haul, and there is no limit to the amount of capital it will employ to meet its goal. Chairman Powell was quoted as saying,” We at the Federal Reserve remain committed to using all the tools we have, for whatever length of time it takes, to provide stability, and to ensure a healthy recovery.”

The current quantitative easing is not being labelled by term. The vast amount of capital needed to stabilize the economy has no defined cap. Unlike the financial crisis, the fiscal aid packages could easily reach $5 trillion. This fiscal aid, which is a necessity, has created the largest deficit ever seen in the U.S., adding more fuel to a fire that was already raging.

The Pandemic Still Causing Problems

The global pandemic is challenging central banks and governments, not only in the U.S., but worldwide, to ward off a recession, or worse, a depression. This is why safe-haven asset classes such as gold and silver gain value quickly.

In the few short months that the pandemic has impacted the markets, there has been a limited window of opportunity for investors and industry players to rebalance. Some were unable to move into safe-haven assets. These people have been given a second chance.

Those who were able to make the right moves, exiting their positions, and taking profit, the sharp decline has opened up opportunities for them to reenter the markets once the correction absolves. The fundamentals which have contributed to the dramatic gains in precious metals have not changed.