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Gold and silver entering much needed consolidation phase

(Kitco News) – It’s been another wild week for the precious metals market and from talking to analysts all week I think investors need to get comfortable with higher volatility in gold and silver.

Gold and silver are going to become a little nuanced as the runaway bull market from the last few months settles into a much needed consolidation phase. This new phase in the market shouldn’t come as any surprise as some analysts have been warning that the market was becoming a little crowded.

According to the results of Bank of America’s August Fund Manager Survey, gold is the second most crowded trade in financial markets, only behind tech equities. The report said that 31% of survey respondents felt that gold was overbought, that is the highest reading since 2011.

But BoA wasn’t the only institution to warn investors about chasing the market. Billionaire investor Mark Mobius, founder of Mobius Capital Partners, also made headlines this week, saying that gold was overvalued.

“I would not advise buying gold or precious metals at this time until a price correction has taken place,” he said in a statement to U.K.-based Financial News.

Brian Belski, chief investment strategist at BMO Capital Markets, said that he is neutral on gold and silver as the markets are fundamentally overstretched.

“I don’t think it’s a sell here,” he said. “I just think it’s something you don’t want to chase after it has gone up so much.”

And finally, in a comment from TD Securities: “Gold continues to look good, just not at any price.”

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Although fund managers and market analysts are hesitant to jump into the gold market, that doesn’t mean sentiment has shifted. As we enter an important consolidation phase, it is important to distinguish between short-term momentum and long-term fundamentals.

There are real reasons why gold has seen historic moves as it pushed to all-time highs. The reality is that real interest rates are going to remain in low to negative territory for the foreseeable future. Governments are taking on massive amounts of debt to stabilize the global economy that continues to feel the effects of the COVID-19 pandemic. And according to many analysts, this will lead to a global debasement of currencies. 

So in world where there is no yield and consumer purchasing power is being eroded, gold shines as a historic store of value.

Finally, I wanted to end this week’s on a more serious tone. Last week, Kitco News said goodbye to Daniela Cambone. Because of her incredible journalism skills she has been an amazing leader for the news team.

While I wish her all the luck with her new endeavors, I just wanted to say that I will miss working with an incredible friend who has been a great support to me professionally and personally.

So that is it for this week, rest up because the fireworks in gold and silver are just starting.

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