Gold Rebound Shaky as Silver Continues to Outshine the Yellow Metal

Friday, August 21, 2020 5:30PM / Funsho Idowu, Proshare Research/ Header Image Credit: FMT

Gold prices have had a stellar performance so far in 2020, hitting a record high of over $2000/t.oz during the first week of August. This rally took a hit during the second week as prices of the precious metal tumbled below $2000/t.oz to $1911.89/t.oz.

On Tuesday there was a rebound of +4.74% as the spot price closed at $2002.44/t.oz. This rise in price was short-lived as the price declined by -3.67% to close at $1928.98/t.oz. on Wednesday as the dollar jumped and Treasury yields gained after the U.S. Federal Reserve's July meeting minutes showed policymakers expressing little support for caping bond yields.

On Thursday, Gold price rose by +0.95% to close at $1947.26/t.oz. (see Chart 1 and Chart 3).

Chart 1: Gold Price January 2020 - August 20^th, 2020

Source: Bloomberg, Proshare Research

On Thursday, Silver inched up from $26.70/t.oz. to $27.25/t.oz. Making a rebound from a monthly low of $24.79/t.oz seen in the second week of August. (see Chart 2).

Chart 2: Silver Price January 2020 - August 20^th, 2020

Source: Bloomberg, Proshare Research

Chart 3: United States 10-Year Bond Yield

Source: Investing.com, Proshare Research 

Silver Becoming the New Gold?

Silver shown stellar performance in the last two weeks as demand has gone on an uptick. The metal has outperformed gold as a hidden -value investment opportunity. Year-to-date and week-to-date growth in the value of silver has outstripped growth in the value of gold. Silver recorded a year-to-date and week-to-date increase of +52.65% and +3.03% respectively. (Table 1).

Table 1: Changes in Gold and Silver Price

Source: Bloomberg, Proshare Research

The sizzling run by Silver in the past few months could be attributed to the recovery in industrial operations as silver is used in electronic parts and the production of solar panels.

Another reason for the rise in the value of silver is the depreciation of the US dollar against the currencies of the United States of America's trading partners, rising domestic US inflation and the collapse in real interest rates, pushing investors towards the bullion.

Volatility is another factor. The silver market is more volatile than the gold market. For investors looking to profit from a sudden increase in prices, silvers additional volatility is advantageous because more volatility means larger spikes in the commodity's price and stronger potential investor returns.

Outlook-A Dash of Uncertainty

The bullion thrives better in uncertainty. The global economy is slowly picking up with industrial activities kicking back into action which has been good for silver but not so pleasant for gold as the yellow brick has minimal industrial applications.

From a market point of view, Gold and Silver are poised to rise in market value, as the global economy takes advantage of the splash of cash coming from quantitative easing (QE) in virtually all major global economies as governments try to stimulate their economies against the lockdowns prompted by the coronavirus pandemic in Q1 and Q2 2020.  

Analysts note that periods of volatility and pullbacks in gold and silver prices will occur during periods of strong risk appetite which could possibly be pushed by positive developments regarding the coronavirus vaccine and more favourable prices in other asset classes.

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