The price of gold has climbed to the highest level in six years, and the increase in silver prices this week is the highest since July 2016. Investors have turned to precious metals again after it turned out that the US and China trade deal will not come so quickly. Prices of gold and silver can also be boosted by a falling dollar and dovish monetary policy bias.
News agencies say China is demanding that the US ease the restrictions for the technology giant Huawei. This situation slightly weakens global stock markets and supports safe gold and silver. This is also accompanied by interest rate cuts expectations by the Fed, falling real interest rates on bonds and a gold/silver ratio.
Gold/silver ratio over years. Source: tradingview
In recent times, gold has been over 92 times more expensive than silver. This is the value that was last seen in 1992. This means that investors have been much more interested in the gold market than silver over the past few years and have definitely bought gold more often. However, this could change soon.
As the long-term history shows, the correlation between gold and silver from the last decade is 0.8. However, silver is much more volatile than gold, especially in the era of low interest rates, to which we return again in the global economy. The silver market is much smaller than the gold market, so an inflow of even smaller capital can make silver prices much more susceptible to changes than gold.
What is more, it is also said that silver often reacts to the gold market with a delay. Hence, it can be assumed that investors and fund managers buy silver in the belief that in the coming months it will reach the level of gold price increases, because yellow metal definitely broke from the long-term consolidation and reached the 6-year high.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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