• Isaac Cohen ('23)

The Precious Metal Market Review



One of the limited options for a teenager interested in investment is acquiring precious metals, which has been a popular form of investment for many decades. To create the greatest chance of investment success, it is necessary to develop a basic background in the precious metals market.


Gold and silver, most notably, have been a big part of the history of money, even having served as monetary tender since ancient Greece and Rome. Interestingly, the values of gold and silver are relative, meaning that the valuation of an ounce of gold has remained relatively constant since Ancient Greek times. For example, let's say you are a spartan warrior during the times of Ancient Greece. You are paid in two ounces of gold for your monthly service, which can buy items worth two ounces of gold. The value for that two ounces today is the same as it was in the past in terms of buying power. Therefore, gold is relative, the money of the world, and will always have the same buying power. However, in 1965, coinage of the U.S has shifted away from a 90% silver composition to a clad of copper and nickel. This was due to inflation and the heavy demand for silver.


The Pandemic and Its Effect

In this past year, silver and gold have been through a rollercoaster of events due to the Covid-19 crisis. Hand in hand with the stock market crash in March, silver, and gold have plummeted in value from the months of March to May. Gold has devalued from $1674/oz in January to $1484/oz in March and silver from $18.00/oz in January to $11.90/oz in March. You may be wondering why such a drastic change has occurred in the lowering of prices. This is due to fear. In times of fear, the demand for precious metals plummets as it is not seen as a necessity in times of crisis. It is only in the time of reaction that we see spikes in the silver and gold market. After the relative control of the virus in the summer months, more people see silver and gold as lifelines when times are tough for their relative increase in value. Therefore a higher demand causes the market to spiral upwards from gold: $1739/oz in June to $2,064/oz in August and silver: 17.43/oz in June to 29.25/oz in August. I mention the past market trends due to their importance in understanding future or present market predictions depending on how you see them.


With the news of the effectiveness of Covid-19 vaccines in trials by companies, mostly Pfizer and Moderna, in mid-September 2020, gold sank sharply towards mid to low $1800 in the past weeks. Right now, December or January of 2021, depending on when this edition comes out, there is a big potential for the investing of precious metals. With low prices at the moment this is a great moment to buy.


Debunking the myth of a Herd Immunity Economic Jumpstart:

The theory of herd immunity is certainly not new. Many medical officials have proposed it to end the pandemic and restore the economy as people will be able to go back to work. To be effective, it requires that more than most people in a community have already gotten the virus and are immune. Therefore, the virus cannot live on the immune and has no way of affecting the immune. This theory works in principle; however, hindsight is 2020, and this theory is wrong.


In situations where a vaccine is necessary for a deadly virus, there will always be those who oppose such treatments and rely on the failure known as herd immunity. The truth hurts and believe it or not herd immunity isn't effective for Covid-19. It may be argued that because of antibodies, you could potentially create herd immunity. There is a simple flaw in this theory, however, that the virus mutates, and therefore antibodies are only for short periods of immunity. In addition, in order to create herd immunity you would have to infect the majority of a population sending many people to the hospital. If this were ever to happen, the market would rumble downwards as the sight of sick people pouring out of overrunning hospitals because of a theory that would not work in reality. To prove this, as this may seem like an unpopular opinion to the critical readers out there, a study from John Hopkins Bloomberg School of Public Health:“With some other diseases, such as chickenpox before the varicella vaccine was developed, people sometimes exposed themselves intentionally as a way of achieving immunity. For less severe diseases, this approach might be reasonable. But the situation for SARS-CoV-2 is very different: COVID-19 carries a much higher risk of severe disease and even death.


The death rate for COVID-19 is unknown, but current data suggest it is 10 times higher than for the flu. It’s higher still among vulnerable groups like the elderly and people with weakened immune systems. Even if the same number of people ultimately get infected with SARS-CoV-2, it’s best to space those infections over time to avoid overwhelming our doctors and hospitals. Quicker is not always better, as we have seen in previous epidemics with high mortality rates, such as the 1918 Flu pandemic.


We understand now the virus’s effects on the economy however this only branches towards other topics of discussion, mainly inflation. This phenomenon is when the purchasing power of money increases and goods and services cost increases. In times of crisis, money is hoarded, causing deflation where the purchasing power decreases and goods and services cost less. This leads to investors taking out their money as it is pointless to invest in a company that is lowering in value(a.ak.a a recession). In order to combat this phenomenon the U.S approved stimulus checks in order to jumpstart the economy, however this only leads to inflation. As stated by the New York Post concerning this issue:


"If we remain in an environment of record-breaking deficit spending alongside zero interest rates, it is certainly one possible outcome here that we would see a world of rising inflation and high unemployment," Bloom, a vice president at Altamont Capital Partners, told CNBC.


The likelihood of another large-scale spending bill to follow up the $2.2 trillion CARES Act combined with the Fed’s whatever-it-takes approach to monetary policy is likely to speed up inflation going forward, Morgan Stanley economists reportedly contend.[for clarification the 2.2 trillion CARES Act is the bill passed by the Trump Administration to jumpstart the economy]


The stimulus check to jumpstart the economy works in the short term; however, in the long term, it causes inflation, which drives up prices for everything, including the price of gold and silver.


Conclusion

Gold and silver are a hedge against inflation, and no matter the situation, they will always be valuable. However, there are vital times where it is optimal to buy/sell. I predict there will be a rise in precious metals due to the fear of the vaccine and ongoing virus. However, in March, when the vaccine should be administered in full scale, the market will level out, and the price will drop drastically as the pandemic will hopefully be under control.


Note: When mentioning the prices of the metals, it is measured per ounce.


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