Gold breaks records as Silver shines

21 July, 2020

Hopes for stimulus and optimism about the vaccine have brought back demand for risk to the market. The Nasdaq 100 index closed at historic highs on Monday and is testing 11,000 on Tuesday morning on reports that the U.S. authorities are preparing a new stimulus package of more than $1 trillion. In addition, the EU authorities have agreed on a new seven-year budget of more than 1 trillion euros, effectively doubling the previous one. Both S&P500 and German DAX were above the closing levels of 2019, reflecting the impressive interest of buyers.

However, the markets are also increasing the demand for gold and silver. These instruments often show accelerated growth against the background of inflation fears. In addition, gold is bought together with stocks, thus hedging the risks of the stock market drop, if the situation suddenly follows a less favorable scenario.

The story is also on the side of gold bugs. In 2008, the gold price returned to growth immediately after an acute phase of decline amid the collapse of Lehman Brothers. Subsequently, gold almost tripled in price during a 3-year uptrend from $678 to $1920. The main driver at that time was the unprecedented rate cuts and the launch of QE. It is important to remember that gold growth and policy easing began long before the acute phase, which temporarily restarted the trend, but did not fully reverse it.

The current situation is very similar to what happened 12 years ago. Gold has been growing steadily for over a year now, having received the initial impulse on the Fed’s hints of policy easing and further rate cuts. In the 10 months prior to March 2020, the price of an ounce rose by more than a third to $1700 and then briefly adjusted to $1450. Having stood close to these levels for a few days, gold recovered quickly, gaining since then and yesterday updated its 9-year high at $1820.

Despite the fact that gold looks overbought on some short-term indicators, it should be remembered that an important driver of its growth is the fear of inflation, which can intensify because of abnormal stimulus packages and the need for investors to balance the portfolio because of equally inflated stock prices.

It won’t be surprising in such conditions, if before the end of the year gold not only updates the historic highs at $1920, but also tests the level of $2000.

Silver should not be forgotten as well. This metal is more tied to the pace of industrial production than gold but is capable of even larger dynamics during the economic boom. From the lowest level of $8.4 per ounce in 2008, silver jumped to $50 in less than three years, showing an almost six-fold growth increase. In March this year silver was down to $11.3, and this morning overcame $20, rising to its highest level since 2016. If we exclude the March drop, the silver just pushed off the bottom and started growing.


Source  
Shares bounce, but currencies are wary28 Sep, 2020  

The markets on Monday morning are supported by hopes for fiscal support in the US and progress in Brexit negotiations. Interestingly, the markets have managed...

Dow futures rise as market tries to avoid losses for the week25 Sep, 2020  

U.S. stock futures rose slightly on early Friday morning as the market indexes tried to avoid a fourth consecutive week of losses. Futures for the Dow Jones...

The melting of the dollar reversed by top US economic officials23 Sep, 2020  

The two US economic policymakers, the Fed Governor and Treasury Secretary are supporting interest in US assets, strengthening both the dollar and the equity...


Markets dangerously flirt with correction22 Sep, 2020  

The financial markets are trying to determine the future direction after a wave of decline on Monday. The dollar, which yesterday added against most competitors...

U.K. at Critical Point in Virus Surge With London at Risk21 Sep, 2020  

Britain is at a "critical point" in the coronavirus pandemic, Prime Minister Boris Johnson will be told on Monday, as concern mounts that a second lockdown may be...

European stocks struggle as virus worries weigh on fragile recovery18 Sep, 2020  

European stocks struggled for momentum in early deals on Friday, with a resurgence in coronavirus cases across the continent raising concerns about its impact...


Oil jumps as hurricane hits U.S. output while crude stocks decline16 Sep, 2020  

Brent crude rose 85 cents, or 2.1%, to $41.38 a barrel by 0645 GMT, while U.S. crude rose 92 cents, or 2.4%, to $39.20. Both contracts rose by more than 2% on Tuesday...

Bulls buy back the drawdown, FX dynamic supports optimism14 Sep, 2020  

Global markets are experiencing some relief at the beginning of a new week. Pressure on the US indices has stopped approaching the 50-day average...

Stocks Climb, U.S. Futures Rebound After Sell-Off9 Sep, 2020  

Stocks rose in Europe along with U.S. equity futures as optimism crept into markets that Tuesday's tumble in America may have drawn a line under the recent sell-off...