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The Sharp Perspective

Silver prices have started to play catch-up with gold

04 Jun 2024

Key takeaways

  • Gold sets fresh record high at $2,450 per oz
  • Market focused on Fed rhetoric
  • Silver switches from underperforming to overperforming gold…
  • …silver breaks above 2020-2021 highs
  • Platinum reverts to trade at a premium to palladium

Gold prices set fresh highs, before once again consolidating. The timing of the first US interest rate cut seems to be driving prices

  • Uncertainty on many fronts, combined with expectation for lower interest rates are providing the bullish back drops
  • Fund buying continues to be a driving force, with price dips so far being short-lived
  • Although ETFs remain net sellers, some regions are buying, while others are selling
  • US election likely to keep the broader market nervous, which should keep interest in gold high

Silver prices have started to play catch-up with gold, which has seen the Gold/Silver ratio drop sharply  

  • Prices climb through 2020 & 2021 highs to reach levels not seen since 2012. Next resistance levels seen around $35 per oz 

Platinum rallies and funds get more involved, but palladium still lags behind

  • Funds still net short palladium, but will rising commodity prices make those shorts uncomfortable?
Silver prices climb through 2020 & 2021 highs to reach levels not seen since 2012.

Gold had a month of two-halves in May – new highs, followed by consolidation

After consolidating in the second half of April and into early May, spot gold prices then resumed their upward voyage to set a new high at $2,450 per oz on May 20, they have since once again pulled back to consolidate. The day-to-day oscillations in the gold price are firmly tied into expectations about when the US Federal Reserve (Fed) will make their first rate cut. Poor unemployment claims data on May 9, left the market thinking a rate cut may come sooner than later and that weakened the US dollar and prompted buying into commodities. Then comments by Fed official, Michael Barr, on May 20, saying that the “Fed will need to allow tight policy further time to continue to do its work”, suggested the Fed was still potentially hawkish and could even raise rates again, this led to dollar strength that weighed on gold and other commodity prices. Over the following few days after May 20, gold prices dropped 5percent to around $2,325 per oz and over the same period, copper prices dropped 8% from its record high.

Chart 1

Considerable uncertainty on so many other fronts is underpinning the overall upward trend in prices.

 

So much uncertainty supportive for gold

While the Fed’s stance may be driving short term fluctuations in the gold price, considerable uncertainty on so many other fronts is underpinning the overall upward trend in prices. This uncertainty includes the geopolitical situations over Russia/Ukraine, China/Taiwan and Israel/Palestine, political situation in the US with the US presidential election and how that could impact geopolitics around the world going forward and on the economic front, concerns over skyrocketing government debt, especially the US’s $34.7 trillion of national debt. In 1980, US Federal debt was 34.6 percent of GDP, in 2000 it was 57.7 percent and today it is 122.3 percent. Is this debt model sustainable – if not then what happens to the US dollar and the US economy?

Read the full report

04 Jun 2024 | Categories: Gold, Silver, Platinum