- The price of silver is catching up as investors worry about the deflationary outlook.
- Commodity prices are falling faster than the FX run down, bullish for gold and silver.
Money catching up towards the end of the week gold and the money ratio falling close to 1%. As of this writing, XAG / USD is trading at $ 15.83 after climbing 1.65% from $ 15.45 to a high of $ 15.85.
Silver prices tend to follow but lag behind gold, especially when the tide goes up and prices go up. There is a conundrum in the markets right now, whether we will see deflation before inflation and what it means for gold prices. However, when we look at the charts, gold has performed regardless of the outlook for deflation or inflation, whether stocks and bond prices have risen or fallen since late April.
Everyone agrees to buy gold right now, whether you are deflationary or reflationary. In an environment where rates are heading towards zero and there is a race to the bottom on the FX by central banks, what is bullish for gold should generally be bullish for silver.
Things are different this time
However, we saw it in 2008 and with the recent black Thursday coronavirus crash, when global markets collapsed, and investors ran to cash in to cover margin calls, gold and silver plummeted.
In the longer term, during the duration of previous recessions, the yellow metal has constantly shown an increase in its value. Silver, on the other hand, has remained stable in past declines, if not negative. Silver tends to lose value due to its heavy use in the industry.
However, he is extremely deflationary this time, more so than previous recessions. With all currencies falling in value and commodities falling more than currencies, this is an unprecedented scenario that should support both silver and gold.
“Our expectation remains that when the dust settles, capital will seek to protect itself from an extended period of negative real rates following the pandemic,” said analysts at TD Securities.
In this context, we continue to see a high obstacle to a significant change in CTA positioning, but note that the trend followers have increased their length of gold in recent days in a context of normalized volatility.