Precious Metals: A Fundamental Review For 2015

Gold and Silver started 2015 in positive territory, gaining 0.56% and 1.19% respectively. But there are plenty of fundamental headwinds facing precious metals heading into 2015, many that dominated the headlines in 2014. A stronger dollar, slowing global economies, and deflation concerns, to name a few. But more on this later…

Can precious metals regain their luster? Here’s a quick look at spot Gold and Silver prices on the first trading day of the year. As you can see, Gold prices remain under $1200/oz, while silver lingers around $15-$16/oz.

In 2014, capital flowed into equities and bonds, and out of commodities. Of the precious metals, Gold fared the best, closing just under break even for the year. On the other hand, Silver joined Crude Oil as commodities that got hit hard. Below is a performance chart of Gold and Silver for 2014.

Precious Metals Performance Chart – 2014

Will the same fundamental headwinds plague precious metals again in 2015? Let’s review some headwinds:

1.  US Dollar Strength – The dollar has been ramping higher for the past 6 months. And although it is due for a correction, it may be hinting at more strength in 2015. Just look at the recent news about Turkmenistan devaluing their currency vs the dollar. Could this trend continue with depressed commodities prices? How the dollar fares will greatly impact precious metals.

2.  Slowing Global Economies – Europe, Japan, Russia, China, etc… have all experienced a slowdown in growth. And this has factored greatly into the stagflationary atmosphere we are investing in.

3.  Deflation Fears – This is very real. Europe is a mess and the ECB is concerned about deflation. How Mario Draghi and the ECB decide to stimulate the economy should be watched closely.

4.  Out Of Favor Asset Class – As mentioned, investors clearly favored other assets over precious metals. Keep an eye out for any signs of rotation on the next pullback.

On the flip side, what could spur a bounce, or prolonged rally in precious metals?

1.  Geopolitical Tensions – Russia is still ripe for more tension with the West. As well, lower Crude Oil prices could create additional tensions in the Middle East.

2.  A Pullback In The US Dollar – A slide in the Dollar would put a floor under Gold and Silver. This is likely dependent on Europe and the Euro finding a bottom.

3.  Europe – Dramatic action by the ECB could take some pressure off and give commodities a nice boost. BUT, that action could be short-lived (a common theme for central bank action).

4.  Sentiment – Investor sentiment toward Gold is pretty poor. A final whoosh may very well be in the cards to shake out the last of the bulls, but it appears that sentiment is nearing that “stay away” point that assets need to find a bottom.

Stay tuned for my near-term technical outlook on gold and silver. Should be posted shortly.  Thanks for reading.

Follow Andy on Twitter:  @andrewnyquist

No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.