Gold takes a wild ride after hitting highs

Yahoo Finance’s Brian Sozzi and Alexis Christoforous discuss the market action for gold and silver with Chris Taylor, Great Bear Resources CEO.

Video Transcript

ALEXIS CHRISTOFOROUS: It has been a very good year for gold. But this past week has been a bit of a different story. The precious metal is very volatile, plummeting from its 2020 highs. In fact, yesterday it suffered its biggest one-day drop in seven years.

For more, let's turn to Great Bear Resources CEO Chris Taylor. Good morning, Chris. What do you make of the action we've been seeing in the gold market the past few days?

CHRIS TAYLOR: I probably sound a bit redundant here, but it's more volatility. And it's reflective of the volatility in the broader market. So as you said, I was glued to my screen and my phone yesterday. And that was, I think, the biggest price drop I've seen in a day in very many years.

ALEXIS CHRISTOFOROUS: And what do you think precipitated that drop, though, Chris?

CHRIS TAYLOR: I think, effectively, we're looking at gold having risen almost exponentially when you look at a graph. And when you see those sort of rapid price appreciations, you're going to see rapid-- you're going to see rapid falls at the same time. It actually didn't fall as much as I thought it would on a serious correction day.

I was looking for it to hit about $1,800 an ounce. And I think it traded as low as about 18-- about $1,850. And now I see that we're actually back up at about $1,940 an ounce.

So it seems like it's rebounding pretty nicely this morning as well. In fact, it's worth about $20 an ounce more than the last time I was on the show with you guys.

BRIAN SOZZI: Chris, I was just reading an op ed from Mohamed El-Erian in "The Financial Times" on gold. And he said part of the run up in gold has reflected the market's view that gold could finally be a stand alone option in someone's portfolio. But the action this week suggests maybe that's not the case.

CHRIS TAYLOR: I think gold will maintain its position as a hedge against volatility, against the loss of financial capability, financial storage of value. It'll maintain that over the long term, like it always has done. What we're seeing now is an influx of non-gold specific investors into the gold space. And that increases the volatility.

So you have people that are chasing momentum. And momentum-based traders accumulating gold is just going to add to the price fluctuations that we see in the market.

JARED BLIKRE: Hi, Chris. I just want to get your take on the influence of the dollar and also interest rates, long-term interest rates, because we had a sudden reversal over the last few days where longer-term rates are jumping up, real rates are rising. That could be contributing to the weakness in gold. And then we had this huge selloff in the dollar, a weakness. But that has kind of been on pause for a few days, at least a week.

So how does that fit into your analysis?

CHRIS TAYLOR: Short term, I think yesterday was a bit of a culmination of a couple of factors. One was the reversal in real rates. So there was a narrative built around gold over the last number of months that brought it from about $1,500 an ounce to over $2,000 an ounce, where real rates were negative. And, of course, that's very bullish for gold.

But also yesterday, you had the shock to the market of the Russian vaccine announcement. And I think, from my point of view, it was somewhat surprising that the market reacted as it did. I think there's dozens and dozens of vaccine trials around the world, all of which are yielding positive early results. So it's more of a matter of when and not if there's going to be a vaccine.

So I think you saw the culmination yesterday in the selloff of both of those factors coming into play. But the long-term fundamentals on gold, there's definitely going to be more quantitative easing in order to get the economy out of its current right. So the narrative that's built around an additional money supply and sort of inflationary pressure is definitely going to be a factor over the long term. And that will be bullish over the long term for gold prices.

ALEXIS CHRISTOFOROUS: Chris, how much is the upcoming presidential election a catalyst for gold prices, do you think?

CHRIS TAYLOR: It's interesting. I couldn't tell you what exactly is going to be better in terms of an outcome for the gold market. I can tell you as a Canadian, I think Kamala Harris grew up partially in Canada, in Montreal, actually, while her mother was a professor at one of the universities there. So I think she's a great choice for a vice presidential candidate, just from my Canadian perspective.

In terms of an outcome, who's going to be more generous on the quantitative easing side, I could see that being probably the Democratic party. So if you're looking for inflationary pressure over the long term, you're probably going to be-- and you're-- and you're a long-term holder of gold, you're probably going to be in that sense looking for more quantitative easing. And you're probably going to do better over the long term under a more accommodating policy. So that could come in with a Democratic win.

ALEXIS CHRISTOFOROUS: Chris Taylor, CEO of Great Bear Resources, thanks for an insightful talk on gold. Be well.