Following Wednesday’s much-anticipated Federal Reserve meeting and Jerome Powell’s reassurance to investors that he will allow inflation to run without chasing it down with rate hikes, a turning point now looks likely for real interest rates1 and therefore monetary metals investors.


Ever since inflation expectations took hold last summer, the bond market has been concerned about rate hikes and even a tapering of asset purchases. But Powell has now confirmed that a repeat of 2013’s ‘taper tantrum’ isn’t going to happen, and that any adjustments to monetary policy will be made with plenty of advance warning. At the same time, yield curve control remains likely, unmentioned but lurking in the background. Falling real interest rates therefore seem inevitable, which is bullish for gold – the traditional hedge against inflation. We see further stimulus, supportive fiscal and monetary packages, and accommodative central banks as the reality of what remains a highly stressed macroeconomic environment.

Gold, silver and mining majors are perfectly poised for a rally

At first glance, one might be forgiven for thinking that the significant decoupling of gold miners versus broader equities (see Figure 1) suggests that last year’s rally in gold and silver miners was just a flash in the pan, another disappointing false start.


But looking more closely, as active managers we are actually seeing consecutive quarter-on-quarter improvements in the operational performance of gold and silver mining companies across the board. We are seeing rising free cash flows, rising dividends in the majors, exploration success, and greater merger and acquisition activity, of which points to a highly encouraging outlook for mispriced gold and silver mining companies. In my view, all that gold, silver, and the miners are missing is a change in the wind and the arrival of wider market momentum.

Figure 1: Gold miners and equities have decoupled


Source: Bloomberg as at 18.3.2021


We have been keen to exploit some of these mispriced mining opportunities in our gold and silver strategy. For example, we recently added some high quality Australian mid-cap gold miners at a 50% discount to where they were trading last summer.

A sustainable environment for rising gold and silver prices

Gold spot prices suggest they have bounced off a key technical support level which is reinforced by a bullish Relative Strength Indicator2 and exceptionally weak sentiment.

Figure 2: Gold spot prices (USD) have bounced from a critical support level



Source: Bloomberg as at 18.3.2021


These observations are further supported by bullish positioning in futures markets where long contracts in managed money (one of the categories in futures that best represents speculators) are at historically low levels (see Figure 3).


All of this, in our view, points to a highly sustainable environment for rising gold prices and, by proxy, silver prices once investor flows reappear. We expect this shift in participation will be triggered by real interest rates resuming their secular trend lower, after the drift higher in the last six months that saw long-end yields rise to unsustainable levels. In the strategy, we remain well positioned for a gold and silver bull market scenario.

Figure 3: Long managed money contracts are at all-time lows



Source: Bloomberg as at 18.3.2021


1 The return that investors can expect to earn after compensating for inflation.

2 A momentum indicator that measures the speed and change of price movements.


Please note: Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested.


This communication is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice.


The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI, the Management Company), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission. No part of this content may be reproduced in any manner without the prior permission of Jupiter Asset Management Limited. 27261