Cobas AM: Nueva Gestora de Francisco García Paramés

 The bull market in both gold and silver started in 1970 with gold at $35 and silver at $1.75 per ounce. After Nixon suspended convertibility of the US dollar into gold in August 1971, both gold and silver prices entered huge bull markets. By 1974, gold had reached $190 per ounce while silver had spiked to almost $7. The Arab oil embargo started in October of 1973 and precipitated a four-fold increase in oil prices that led the US Federal Reserve to aggressively raise interest rates. The Fed Funds rate which stood slightly above 5% at the start of 1973 had increased to 13% by the summer of 1974. 

Rising interest rates temporarily halted the bull market in both gold and silver. After peaking in the first quarter of 1974, gold and silver spent the next two-and-a-half years correcting. Gold eventually bottomed in August 1976 at $105 per ounce — a retracement of 45% from its 1974 peak. Silver bottomed at $3.80 in January 1976 — 45% below its 1974 peak. 

After peaking in 1974 at 13%, the Fed Funds rate fell back to 6% by 1Q 1975; however It took another two years for the bull market in gold and silver to resume with a vengeance. 

We believe we are about to enter a period of increased inflationary expectations. As a result, we believe the Fed will eventually be forced to raise rates. Given the experience of the mid-1970s, we remain cautious of the near-term impact on gold and silver. 

We still believe the corrective phase in both gold and silver is not over. The precious metal bull market awaits, but we believe its next leg has not yet come.