Does 2020 provide us with a Crystal Ball for Gold and Silver Performance in 2021?

If we had a crystal ball and could predict the future performance of investments and assets, we would all be sensationally wealthy. The uncertain nature of speculation and guess work would be eliminated and we would all be able to rest comfortably in our investment decisions.

Unfortunately, while we do not have the gift of clairvoyancy, we do have the ability to piece together the events that occurred in 2020 leading to the current economic state in the US. Where we were prior to 2020 and where we are at today can shed significant light as to the projected performance of gold, silver and other commodities as 2021 commences.

2020, with all of its crazy twists and turns has proven to be unprecedented for the US economy, the Dollar and world markets. 2020 came in with all the ferocity of a lamb, but began to rear its ugly head beginning with the onset of the Covid-19 pandemic. February 2020, marked the onset of the fourth worst recession since 1870. In fact, it is the most severe recession recorded since WWII. The stock market then plummeted in March as the Pandemic issued in a wave of stay-at-home orders and wide spread uncertainty.

Not only did the pandemic instill the world with fear and panic, sheer loss of life and mandatory lockdowns caused the economy to nearly grind to a halt. If you were non-essential you were basically unemployed. Those who were able to work, worked from home. Unemployment and underemployment surged.

As if a pandemic weren’t a big enough obstacle to overcome, the George Floyd and Brionna Taylor incidents created a divide within the US that promulgated widespread protest movements and civil unrest. This great divide culminated in the most tumultuous and unparalleled US election in voting history. To say 2020 was “unprecedented” is an understatement with regard to the economic fallout from the turmoil.

The Fed responded as it always does to economic uncertainty by injecting the US economy with massive monetary and fiscal stimulus. Within just a few weeks of the program the Fed had dumped over $3 trillion into the US treasury market, and for the first time The Fed began buying US corporate bonds instead of scooping up solely junk bonds, which too, is unprecedented.

The Fed’s balance sheets ended the year at $7.4 trillion and are projected to be over $14 trillion by the end of 2021.

Take a look at this chart below from the St. Louis Fed. This is very disturbing to say the least.

It should be of no great surprise that the US dollar responded to significant stimulus by maintaining a steady downward trajectory. Currently, the dollar is at its lowest level since April of 2018. A weakening US dollar is incredibly bullish for both Gold and silver investments. Gold ended the year up 24%, which is its most significant annual gain since 2010. Silver outpaced its gold counterpart with an increase of 46.8%.

The biggest question is how will the roller coaster that was 2020 impact the future of gold and silver investments in 2021?

The Fed is one of the largest factors as it has committed to keeping near-zero interest rates through 2021. As it continues to inject money into the economy, the Fed’s balance sheet continues to swell. Even if the stock market recovery continues, as long as monetary and fiscal stimulus continues and the dollar continues to weaken, the risk of inflation increases. As the dollar loses its purchasing power and value, the value of gold increases exponentially as the one thing that will always maintain purchasing power and value.

But we have 2% “targeted” inflation, right? I digress...

An additional headwind for the US economy is the continued uncertainty of the Covid-19 pandemic. Even after the emergence of a vaccine, the media is brimming with news of new strains and variants in Great Britain and South Africa. These uncertainties could lead to further lockdowns and border restrictions.

In a nutshell, 2021 is not a silver bullet that will make the uncertainties of 2020 disappear. The same factors that were bullish for gold and silver in 2020 exist today. The only certain wealth protection against inflation, against a weakening dollar and a flagging economy are precious metals.

That being said, gold and silver supplies have been very difficult for dealers to maintain. A very narrow window exists in which you can be a participant in gold and silver wealth insurance before wealth insurance “premiums” get out of hand. As pressures on supply increase, that purchasing window steadily closes. This past year Comex, at one point, even had to get a supply from London in order to meet increasing demands. Silver, even more than its gold counterpart, is anticipated to skyrocket in the upcoming months.

As Biden’s green energy project is rolled out and was addressed last night, the white metal’s industrial use combined with its powerful wealth protection, will greatly increase silver’s value and put pressure on supply.

What's another 1.9T among friends?