Welcome to a very brief overview of the recent performance in the markets. The essentials are captured in the table below and each week we will show a chart of interest.
Gold has caught fire over the past fortnight with prices reaching towards $1,560 before running into some light selling as some participants took profits towards month-end. The real excitement came in silver, however, which burst out of a closing triangle formation on the price chart and cleared two downtrend lines (see below) as it shot up from $15.00 in mid-July to reach $16.60 by end-month; in August it has maintained its momentum, to test $18.65 towards the end of last week as the end of August approached.
Silver has spent much of this year brooding about whether it is an industrial metal or whether it is a base metal. This is understandable given the strength of concern about a potential recession on the horizon and the fact that for much of this year gold prices were doing very little. Under those circumstances It makes sense for silver to concentrate more on the prospect for industrial offtake and miserable sentiment in the base metals overall. Silver has now, however, reaped the rewards of gold’s resurgence and the gold:silver ratio has dropped from 93 at the start of July to below 83 at the end of August.
This activity has clearly been driven by momentum traders and Commodity Timing Advisors (referred to generally in the trade as “CTAs”) and there has undoubtedly been godl:silver ratio trading. There has also been substantial short covering, which almost always adds strong momentum to an upward price move, certainly when it is as sharp as these recent moves have been. Exchange Traded Funds have also been active, adding 1,158 tonnes over the course of August (equivalent to two weeks’ global industrial demand) for net investment of $636M. Gold ETF activity over the same period was an increase of just over 100t for investment of $4.9Bn. Silver is heavily overbought at these levels but it has clearly woken up and with gold still benefiting from economic and geopolitical tailwinds along with negative interest rates in much of Europe and massive amounts of negative-interest bearing bonds, the outlook remains solid. For now, though, both markets would benefit from a period of consolidation.
Thought for the week
Trade figures show heavy exports of toys from China ahead of the imposition of tariffs. Santa is busy early this year!