As precious metals investors, it can sometimes be difficult to tell whether major world events are positive or negative for the prices of gold and silver.

However, a repeating pattern is now playing out in the gold market – a pattern which also appeared once before, nearly 10 years ago – which suggests that recent world events will be highly supportive for gold prices in the future.

Let us examine these world events and then turn to our expectations for gold prices in 2021 and beyond.

World Events – Bullish or Bearish for Gold?

Are escalating Coronavirus cases negative for gold prices, since business shutdowns are deflationary and hence cause a boost for the value of the US dollar?

Or are escalating Coronavirus cases positive for gold, since they eventually mean more government stimulus and bailouts, which are in turn negative for the value of the US currency?

Is President Trump’s expected departure from office next month good for silver prices or bad for silver prices?

How are we to know?

Amidst the intensity of world events as of late, there is one way in which we can cut through the noise and identify what is really happening in the world, and how it should impact our decisions as investors. And that is: to focus on price.

Price Contains All Knowledge

After all, price contains the sum of all participants’ knowledge in a market. Buyers, sellers, investors, traders, pumpers, short-sellers, manipulators, hedge funds, banks, sovereign wealth funds, and central banks must all come together at one single point in the market: the current price.

Price contains the sum of all knowledge regarding the market at a given moment. By studying price, and trends in price, we can discover what a market is really expecting...

The full-year 2020 was a wild year for gold.

After a strong 2019, the gold price took a hit in March 2020 as global liquidity evaporated and real interest rates spiked. However, the inevitable policy response of rate cuts, massive QE, and huge fiscal deficits quickly unwound that deflationary crunch and sent many risk assets soaring, and gold was well-positioned to ride that wave to new highs. Then, in August 2020, real Treasury rates began to rise, which led to a healthy correction in the gold price from near-term overbought conditions.

Based on my core gold model, which compares the gold price to broad money supply per capita (normalized to 1973 and 1995 as my baselines), gold is approximately fairly-valued, with good long-term return potential in the years ahead.

This following custom chart shows my model. The blue line is broad money supply per capita, and the red line is the gold price, and both of them are normalized to 100 in 1973. The thin green line, for additional context, is the real 10-year yield, which means the 10-year Treasury bond interest rate minus officially reported consumer price inflation:

Chart Source: St. Louis Fed

Over the long run, gold has a tendency to keep up with monetary inflation. Or, perhaps a more accurate way to put it, is that the dollar has a tendency to devalue against gold at roughly the rate that it is increased per capita, while gold holds its purchasing power. When the gold price gets way above the broad money supply line on the model, it means it’s historically...

I saw the potential for market-changing news over the weekend, but I did not expect it to be on the vaccine front. Pfizer announced a successful vaccine, and gold is plummeting.

Our cycles supported a turning point in precious metals around November 6th (+/- a few trading days). I assumed it would time a low aligned with our 6-month target. Today's market action to the vaccine suggests that instead of a low - gold inverted and formed a high overnight. The election fiasco kept gold elevated long enough to force the cycle to invert. Subsequently, gold pushed its 6-month low into the last half of December. 

GOLD 4-HOUR

Gold prices plummet after Pfizer announced a vaccine that was reported to be 90% effective. This news event forced an inverted cycle, and we expect an initial collapse to $1810 - $1820 (beginning now).

Updated 6-Month Target

Today's inverted cycle peak supports a December target surrounding $1750 for an ABC measured correction. At least that is my initial impression, given today's action. We will know more over the next 48-hours.  

After an initial collapse to $1810 - $1820 (beginning now). We could see a 3 to 4-week consolidation followed by and a final drop in the last half of December. 

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