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Wednesday, 16 September 2020

Gold looking for guidance

 Gold looking for guidance from Central bank policy meeting amid 50 Days left for US elections


Summary Text

Gold has taken up a holding position in the $1900s after setting a mark just above $2000 an ounce in August, and this week's Federal Reserve meeting will continue to affect the next step of the haven. The US presidency fight is entering the home stretch as the electoral tradition that doesn't have a global peer hits the final 50 days before Election Day. The quickly shrinking horizon to Election Day can inject some fresh enthusiasm into the safe-haven, boosting holdings in the ETF.

Article Text

Gold has taken up a holding position in the $1900s after setting a mark just above $2000 an ounce in August, and this week's Federal Reserve meeting will continue to affect the next step of the haven. The two-day meeting — with the statement and Jerome Powell's Wednesday press conference — It just comes a few weeks after the Fed chief explained the Bank's new approach to fulfilling its dual mandate by embracing a more optimistic approach to inflation. Powell at the time described the long awaited change as "a robust update."



Officials will also update their economic and rate predictions in September, but the framework review may have taken the most of its thunder. U.S. central bankers will measure where they see rates going into 2022 in their common "dot plot" chart, but most Fed watchers and analysts across the world as well as top gold dealers alike have already expected rates remaining at zero well before the Fed's framework review has solidified that hunch.

There’s good and bad news. Before lifting prices, the Fed will be vigilant as it expects the recovery to speed up. But the bad news is that it does not have a lot of ammunition left in its arsenal to support the economy if it winds up in need of more aid — at least in the manner it may need aid. Officers say they 're left with more firepower, and they do.

In addition, the Bank of Japan and Bank of England will take decisions this week, all on Thursday. The US presidency fight is entering the home stretch as the electoral tradition that doesn't have a global peer hits the final 50 days before Election Day. The threats of U.S. presidential elections are expected to be more pronounced in investor decision making when there are now just 50 days until November 3rd. In commodities, that matters most for gold and silver traders says Prithviraj Kothari of RSBL.

With Joe Biden ahead in the polls, Donald Trump has consistently suggested that there will be fraud without proof, claiming mail-in votes would result in theft. That's sparked a tide of chaotic, disputed speculation that unleashes market uncertainty. In recent weeks, Gold 's remarkable, record-setting run has seen its strength wane, even as equities have been rocked by a selloff. The quickly shrinking horizon to Election Day can inject some fresh enthusiasm into the safe-haven, boosting holdings in the ETF.


Thursday, 10 September 2020

Why does Silver Outperforms Gold in Bull Market

Summary Text
Silver prices have underperformed gold for most of the time since 2011. In the third week of July 2020 silver prices broke out of the $14 to $20 price range in which they have been caged for the most part since the second half of 2014. Given the smaller size of the silver market it takes less effort for investors to move the price of the metal higher or lower. And past performance has been a fairly consistent indicator in illustrating that silver prices outperform gold in a time when gold prices are rising sharply, a gold price rally


Article Text
Silver prices have underperformed gold for most of the time since 2011. In the third week of July 2020 silver prices broke out of the $14 to $20 price range in which they have been caged for the most part since the second half of 2014. After breaking out of this long held range, silver prices raced sharply higher, rising to an intraday high of $29.9 on 7 August basis the nearby active September COMEX contract. If past performance is any indicator, this could be the start of another sharp run up in silver prices. And past performance has been a fairly consistent indicator in illustrating that silver prices outperform gold in a time when gold prices are rising sharply, a gold price rally.

 When using the same dates as gold, silver outperformed gold on every occasion but one (more detailed discussion on this later). When using silver’s troughs and peaks that were close to or ‘in the same cycle’ as the periods of gold price increases, silver always outperformed gold and the percentage gains were also much stronger than when using the other time frame.



There are several reasons why silver often lags gold in starting a major upward price move, but then rises faster in percentage terms. One of the most important is that the silver market is significantly smaller than the gold market. In 2019, for example, the dollar value of the gold market was around 5.5 times that of silver. {The market size for gold and silver is defined here as the summation of annual physical supply (comprised of newly refined mine output, secondary recovery from scrap, and in the case of gold net official transactions in those years when the official sector has been a net supplier of gold to the market), futures and options exchange trading volume, and London Bullion market clearing volumes.}

The top gold dealers of India believes that given the smaller size of the silver market it takes less effort for investors to move the price of the metal higher or lower. The smaller size of the market essentially increases volatility, which while supportive of outperformance compared to gold when prices are rising also adds risk to the performance of silver as a stand-alone asset and to any portfolio in which precious metals are included.

After years of underperformance relative to gold, reflected in the sharp increase in the Gold: Silver ratio, the silver price is now playing catch up with gold. The ratio has slipped lower but is still at historically elevated levels. Furthermore, while the daily gold price broke its past record and already has made several new ones, the price of silver at the height of its current run up on 7 August 2020 at $29.91, still is 39% below its record high in 2011.

The ratio has been at extremely elevated levels in recent years, highlighting silver’s low valuation relative to gold for an extended period of time. In March 2020 the ratio hit a record high. The ratio has corrected from those record high levels but is still at elevated levels, suggesting more potential upside for silver prices relative to gold. It should be understood that there is no magical number at which this ratio should stand. There are no physical, geologic, chemical, electrical, financial, or other reason why gold and silver should be expected to trade at a given relationship to each other.

Gold/Silver Ratio



Sustained dollar weakness is a primary prerequisite for silver beating gold. A greenback bear market would imply some reversion in its top companion for most of the past 10 years -- the U.S. stock market outperforming the world.

Investor sentiment toward silver is turning extremely positive confirmed Prithviraj Kothari of RSBL. This positive investor sentiment is being driven by investors looking for a hedge to the heightened political and economic risks around the world coupled with silver’s relative value to gold. Additionally, the recent break out of silver prices is likely to attract generalist investors looking for relatively undervalued assets to park their funds and the negative yield on the 10-year TIPS certainly makes assets like gold and silver attractive. The upcoming U.S. election, Brexit, deteriorating U.S. –China relations, and the pandemic give further reasons for investors to add gold and silver to their portfolios, which should help sustain the strength in prices.

While silver prices could potentially rise back to their record levels, they may not be able to sustain those high levels for an extended period of time, with some of the shorter term investors locking profits and fabrication demand being hurt by the high price. That said, while prices may not stay at those past record levels for too long and will come off they should not be expected to sink back to the levels experienced in recent years, or even earlier this year, in any hurry. The fallout from the pandemic should help to keep the prices of these metals at elevated levels for a long time.