What Has Been Going on With Gold and Silver?
Precious metals are often used as a hedge to economic uncertainty, meaning that metal prices move inversely to the overall perceived wellness of the economy. Due to both the geopolitical instability and the uncertainty of the coronavirus environment, precious metals are performing strongly—gold prices reached a record high in the week of 8/3, settling above $2,000 for the first time.[1] Even as aggressive fiscal and monetary policy have helped to keep cushion economic contractions, gold has still outperformed inflation-adjusted interest rates and dollar alternatives, growing roughly 35% as of this year.[2] Given that many major hedge funds have not capitalized on the gains in gold, investors speculate that prices may increase as large-cap money managers begin purchasing gold futures. [3]
Silver prices have been increasing in price as well, seeing gains of over 30% this year. While some investors are undoubtedly using silver in a similar way to gold (as a hedge to market downturns), many are also wagering silver’s prices on the return of industrialization. Silver has a significantly larger industrial component than gold, meaning that as heavy manufacturing returns in the face of a global market rebound, silver prices may increase as well.[4]
While precious metal commodities are performing well, it must be stressed that the length of these price rallies are uncertain. While gold prices are still at a historical high, gold fell by 6% on Tuesday (8/11), its biggest one-day loss since 2013, before continuing to see gains over the next two days.[5] Especially as stimulus hopes rally the equity market, investors need to watch markets closely to see how gold performs over the next couple of months.
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Craig J. Ferrantino is a Registered Representative offering Securities and Advisory Services through UNITED PLANNERS FINANCIAL SERVICES, Member FINRA, SIPC. Craig James Financial Services, LLC and United Planners are not affiliated.
[1] Tan, Weizhen. “Gold just hit a fresh record high—but some say silver is set to overtake.” CNBC. 4 August 2020. <https://www.cnbc.com/2020/08/05/investing-in-precious-metals-silver-prices-set-to-outperform-gold-prices.html> Accessed 13 August 2020.
[2] Goldstein, Steve. “‘Ample Room’ for more gold gains as hedge funds late to the party, adviser says.” Market Watch. 5 August 2020. < https://www.marketwatch.com/story/hedge-funds-late-to-the-party-as-gold-breaks-key-2000-level-2020-08-05?mod=home-page> Accessed 13 August 2020.
[3] Shedlock, Michael. “Gold Soars to New High Above $2000 While Managed Money Sat it Out.” The Street. 4 August 2020. <https://www.thestreet.com/mishtalk/economics/gold-soars-to-new-high-above-2000-while-managed-money-sat-it-out> Accessed 13 August 2020.
[4] Tan, Weizhen. “Gold just hit a fresh record high—but some say silver is set to overtake.” CNBC. 4 August 2020. <https://www.cnbc.com/2020/08/05/investing-in-precious-metals-silver-prices-set-to-outperform-gold-prices.html> Accessed 13 August 2020.
[5] Reinecke, Carmen. “Gold Climbs for a 2nd Straight Day After Suffering Biggest Drop in 7 Years.” 13 August 2020. < https://www.businessinsider.com.au/gold-price-second-day-after-biggest-drop-years-bond-yields-2020-8> Accessed 13 August 2020.