April Is the Cruelest Month – But Not for Precious Metals

After a challenging first quarter, precious metals rebounded in April, writes Sprott’s senior portfolio manager and market strategist Paul Wong, in the firm’s monthly metals commentary.

Gold finished the month at $1,769.13/oz, a 3.6% month-on-month increase. Other metals rose even higher: silver gained 6.14%, platinum 1.34%, and palladium an impressive 11.95%.

Mining equities also saw growth, with gold miners adding 6.16% in April. In fact, gold equities have rallied back up to their 200-day moving average, after being oversold in March.

Over the past twelve months, gold has climbed 4.9%, silver has gained 73.13%, palladium went up 49.25%, and platinum added 54.85%.

Gold, Silver Recover

Falling bond yields added some support to gold’s recovery last month, as Japan ceased trimming its exposure to U.S. Treasuries and large institutional players began to buy bonds for portfolio rebalances.

Meanwhile, silver found support from high industrial demand and supply shortages. Silver’s importance in environmentally friendly technologies continues to give the metal strength. The metal appears to be forming a bullish consolidation pattern, with resistance points expected at $30/oz and $35/oz, according to Wong.

Many Known Unknowns as End of the Recovery Phase Draws Near

It remains unknown how much of the stimulus and post-COVID economic surge has been priced in by yields. Judging by similar historic trends, we are likelynearing the end of the recovery phase, argues Wong.

That’s because while U.S. economic growth is well above both trend and consensus, as the stimulus checks finish running their course, the situation could shift. Spending intentions have meant significant debt. Debt-to-GDP is at 130%, reaching an all-time high since WWII. Biden’s $2.3 trillion infrastructure bill is expected to add to this debt, despite the potential of higher taxes. To prevent debt-to-GDP from advancing further, the U.S. economy would have to greatly expand.

In addition, the rest of the world is still in slowdown. Though the U.S. economy has been strong, China has limited its credit growth and the EU has struggling with its COVID vaccine rollout.

Current market conditions make inflation highly probable, writes Wong, and precious metals such as gold and silver can be used as an inflation hedge.

Sprott offers several investment products that center on the precious metals space, including the Sprott Physical Silver Trust (PSLV), a closed-end trust that invests silver bars.

For those looking for exposure to equities, the Sprott Gold Miners ETF (SGDM) tracks gold and silver miners, while the Sprott Junior Gold Miners ETF (SGDJ) tracks junior gold miners.

For more news, information, and strategy, visit the Gold & Silver Investing Channel.