Will Gold and Silver Continue to Rally?

Precious metals like gold and silver have rallied since mid-March due to the coronavirus (COVID-19), awful global economic data, fears the global economy will not rebound quickly enough, and fears of a second wave of coronavirus. As a hedge against economic uncertainty, there are more than enough reasons to believe that gold and silver prices will continue to rally over the near-term as investors comes to grips with just how badly the coronavirus will damage the global economy.

Gold and silver prices have been on a tear since the middle of March. Gold prices have rallied more than 19% to $1,752 per ounce, while the price of silver is up 50% at $18.03 per ounce. Gold and silver prices are up significantly because nervous investors are looking for a safe place to park their cash.

Most investors are jumping back into the stock market, afraid to miss out on the rally. But precious metal investors believe the stock market rally has been a little too hot and created a bubble. Investors justify the rally in stocks on the fact that the U.S. and Canadian economies are opening up and that a vaccine for COVID-19 could soon be found.

What Are Some Bullish Indicators for Gold and Silver?

Contrarian investors believe the opening of the North American economy may be premature and that the global economy is slipping into a recession. There are also doubts about a coronavirus vaccine and central banks around the world are running the printing presses at full tilt. All of which are good for precious metals like gold and silver.

Case in point: Even though the coronavirus death toll in the U.S. has surpassed 90,000 and more than 6,000 Canadians have died, the number of daily new reported coronavirus cases appear to be on the decline. This is why the North American economy is starting to open up. But even public health experts say there isn’t enough testing being done to get a proper picture and that relaxed social restrictions will put Canadians and Americans at risk of a second wave of coronavirus infections.

We’re already seeing this happen. Mere days after reopening its American assembly plants, Ford Motor Company (NYSE:F) temporarily shut down two factories because employees tested positive for the coronavirus. The closures were brief, but the shutdowns show how difficult it will be for some businesses to operate and comply with more stringent safety measures recently put into place.

Economic data coming out of the U.S. continues to be weak. In the U.S., the number of new jobless claims over the last nine weeks has climbed to more than 38 million and the unemployment rate for May is expected to approach 20%. What’s worse, there is growing concern that many of those jobs are not coming back. One study suggested that 42% of recent lays off will be permanent.

The entire global economy is suffering. The U.S.—the world’s biggest economy—is in a recession, China’s economy—the second largest in the world—is grinding down, Germany is in a recession, and so is England, Canada, France, and Italy.

Virtually, every economy on the planet has been cobbled by the coronavirus, restrictions on movement, and decreased commercial activity. As a result, consumer spending is down as is corporate investment.

While some may say fears of a second wave of coronavirus is overblown, already more than 100 million people in northeast China are being put under lockdown because of a new cluster of infections. The outbreak isn’t as bad as the one that started the global pandemic in Wuhan last December, but it does go to show how fragile the recovery is going to be and that a second wave of coronavirus could shut down the economy again.

Gold and silver prices have been bullish, and for good reason. That said, gold and silver, like the broader markets, will experience normal, corrective pullbacks, but the long-term outlook for gold and silver remains strong.

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