Paul Wong, a strategist at Sprott Market, believes that gold may soon experience a rally in the coming months. Last month, gold bullion increased by 2.5%, with mining equities also seeing a modest recovery in their fortunes, with an increase of 3.33%. The price of gold at the month’s end was $1,814.19 per ounce. Despite this gain, the precious metal is still down 4.44% year to date, with silver also down by 3.44%.
In his report, Wong stated that this year’s weak performance of gold was a mid-cycle correction for precious metals, adding that gold performance in June was most probably caused by a de-grossing event. He asserted that July saw an increase in gold bullion investments as the fall in actual yield added to the buying rationale and more positions were repurchased. Wong believes that as real yields attain new all-time lows and the dollar tops out, a rally is imminent.
Wong also points out that the Federal Open Market Committee’s reaction played a significant role in gold performance in June, adding that the sharp sell-off of the precious metal’s bullion in the first quarter of 2021 was a reaction to the fear of a replay of the Taper Tantrum of 2013. He notes that while today’s repetition is being driven by bond markets, the Taper Tantrum was driven by the Federal Reserve. The reserve is now on an average inflation targeting/zero interest rate policy path, which is basically a financial repression and a USD debasement path.
Worries over another shutdown after the recent surge in the Delta variant across the country also has investors bracing for economic impact. It is a well-known fact that falling yields strongly correspond to an increase in the price of gold. While the precious metal is still below its August 2020 high of $2,067 per ounce, it is still above prices recorded in March of last year. Analysts note that the gold bull market of 2001–11 had mid-cycle corrections in 2008 and 2006. They forecast that gold bullion will hit new highs soon.
This cycle’s correction is following the previous cycle corrections closely, especially in terms of patterns and trading magnitude rangers. Both the current and previous cycle made their trading lows approximately eight months from the peak.
Analysts note that the average time of the corrections in 2006 and 2008 was 16 months. They believe that by early next year, the price of gold will have hit record highs. They note that silver has also demonstrated a stronger response and may also record a new high.
It is unlikely that seasoned players in the mining sector, such as Excellon Resources Inc. (TSX: EXN) (NYSE American: EXN) (FSE: E4X2), will be fazed by this anticipated market correction since they are used to thrive regardless of the prevailing market conditions.
NOTE TO INVESTORS: The latest news and updates relating to Excellon Resources Inc. (TSX: EXN) (NYSE American: EXN) (FSE: E4X2) are available in the company’s newsroom at https://ibn.fm/EXN
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