Ongoing economic risks are sending precious metals considerably higher. At the time of this writing, gold was trading at $1,551.80 an ounce; up 20.7% year-to-date and at its highest levels since April 2013. Silver prices have also been on a tear, up 16.7% this year at $18.50 an ounce.
What’s juicing precious metal prices? Gold and silver are safe-haven investments during times of economic uncertainty. That means investors add gold and silver to their portfolio to limit potential losses during a market correction.
Global Economic Issues
There is a lot of uncertainty out there right now, from the U.S./China trade war and fears of a global recession. Here in Canada, gold and silver are being boosted by our own challenges with China, the economy, and the Bank of Canada.
First, the U.S./China trade war, which has now entered its second year, is having a material impact on the global economy. President Trump has said that trade wars are easy to win, but they aren’t.
The U.S. economy, the largest in the world, is showing signs of slowing down and the country could slip into a recession as Americans gear up to vote in late 2020. China, the world’s second biggest economy, is growing at its slowest pace in more than 15 years.
Three of Europe’s largest economies are most likely already in a recession. This includes Germany, Italy, and the U.K. This could spell disaster for the Eurozone, the largest economic block in the world.
Can’t central banks just implement the same kind of monetary policies they did during the 2008 financial crisis to stave off a recession? Not this time around. Already low interest rates, rising debt levels, and uncertain trade-policies mean central banks don’t have the same kind of ammunition they did. All of which suggests that central banks could be powerless when it comes to preventing a global recession.
Canadian Economic Challenges
Because of economic challenges in Canada, investors are flocking to gold and silver. China may be busy with the U.S., but not so busy that it cannot put a big dent in the Canadian economy. The Canadian government detained Huawei CFO Meng Wanzhou last year on behalf of the U.S., who accused her of violating U.S. sanctions on Iran. On an economic front, China retaliated by stopping all purchases of Canadian beef, pork, soybeans, and canola.
At a time when central banks, including the U.S. Federal Reserve, are lowering their key lending rates, the Bank of Canada has been holding steady. This suggests the Canadian economy is doing well. But the economy only appears to be doing well because of the strong housing sector.
Holding interest rates pat while other central banks are lowering theirs could send the Canadian dollar higher, which isn’t exactly good for trade. Especially in light of the weak energy sector.
What if the Bank of Canada lowers rates? This move will make borrowing even cheaper, which could add even more fuel to the Canadian housing market, which is already viewed as being some of the most overvalued in the world.
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Economic uncertainty, both in Canada and around the world, has sent gold and silver prices soaring and easily outperforming the broader markets. Gold is at levels not seen since 2013 and silver is at its highest levels in two years. This suggests investors are nervous and afraid a correction is around the corner. It doesn’t mean investors should run for the exits. The trading professionals at Learn-To-Trade.com can show you how to profit whether the markets are soaring, selling off, or trading sideways.
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Photo credit: iStock.com/Olivier Le Moal
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