Rates in Europe and Japan will determine Gold and Silver price declines

Markets have taken prices of gold and silver to new highs and there is talk of the rally being over, and the rally just beginning. With precious metals it is difficult to place a finger on the factors that make move in either direction. With no major industrial uses the metals are thought of as currencies, commodities, or alternative asset.

Whatever the reason for people to get into precious metals the universal reason to get out is the lack on income from holding longer term, especially in the face of higher rates. Now in the current settings we have no real loss of income from holding gold, in fact in some countries it would be better to hold gold as the yields on other safe haven alternatives (I struggle to call them that with a guaranteed loss) are negative.

Before the Brexit there was a sense of safety in Gilts and US Treasuries because of the higher interest rates and the prospects of higher yields in the future. Post Brexit the markets seem to be pushing the Fed’s next rate increase further into the future. The UK is now expected to ease policy and lower rates as a result of the referendum. This combination of lower for longer and the possibility of cuts is creating an opportunity for gold and silver to be a safe haven for Europeans. To measure the interest in precious metals going forward I would look to the European and UK yields as a guide. Excluding the periphery countries, most of Europe is going deeper into negative rates (Japan included) and the Pound has collapsed in value and continues to stay volatile. This makes Gold and Silver the perfect place to park gold in the interim. Factors to watch would be good economic data from the US, giving investors some hope that the US will not turn around and resort to easing anytime soon.