The Precious Metals Sector Is Potentially Explosive

Though most investors expect some type of pullback in the precious sector to “reset” the various technical indicators that have become “overbought,” the geopolitical situation with Ukraine has given the sector a flight to safety bid. Interestingly, the response by the west to the Russian invasion of Ukraine to freeze Russia’s foreign currency reserves held by western Central Banks has started to shine light on the risk for Governments to hold fiat currency reserves in foreign Central Banks. The Wall Street Journal featured an article on “what is money?” earlier this month:

“The entire artifice of “money“ as a universal store of value risks being eroded by the banning of key exports to Russia…if currency balances were to become worthless computer entries and didn’t guarantee buying essential stuff, Moscow would be rational to stop accumulating them and stockpile physical wealth in oil barrels, rather than sell them to the West. At the very least, more of Russia’s money will likely shift into gold and Chinese assets.”

The point is that, while periods of crises trigger a rush into physical gold (and silver), the measures taken by the west in an attempt to punish Russia financially and economically could backfire by causing central banks globally to reassess their exposure/reliance on the dollar and other fiat currencies as “monetary reserve” assets and to look at further building physical gold and other hard asset reserves that are not kept in foreign central bank custodial accounts. On top of this, price inflation that is getting worse. Factoring in the fact that the allocation of gold, silver and mining stocks to investment portfolios – particularly institutional portfolios – is at an extreme low as a percentage of assets, and the set-up is in place for an explosive move in the precious metals sector.

Wall Street Silver invited me back onto its podcast to discuss the various factors that could ignite a historic move in gold, silver and the mining stocks.

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