Gold-silver ratio widens
The stark contrast in the performance of gold and silver was a key feature of this week. Many traders were perplexed as gold surged to record levels while silver’s response was muted. This divergence has caused the gold-silver ratio to rise, suggesting that silver may be undervalued and gold overvalued.
Strong dollar and pressure on yields
A strong US dollar and rising Treasury yields played a crucial role in the decline of the silver price. A strong dollar makes silver more expensive for foreign buyers, and rising yields increase the opportunity cost of holding non-yielding assets like precious metals.
Industrial demand concerns
Unlike gold, silver’s significant industrial uses make it vulnerable to fears of an economic slowdown. Weak manufacturing data from China, a major consumer of the metal, has raised concerns about future demand. This industrial aspect of silver has helped it underperform relative to gold throughout the week.
ETF inflows favor gold
This week, we saw institutional investors clearly favor gold over silver. Gold ETFs have seen huge inflows, while silver has struggled to attract the same interest. This shift in speculative capital has further widened the performance gap between the two metals.
Expectations for a Fed rate cut
Market expectations of a Federal Reserve interest rate cut have been a major driver of the precious metals’ recent performance, but the high certainty of a September rate cut (98% probability according to CME FedWatch) has created a “buy the rumor, sell the fact” scenario that could get silver and gold buyers caught out late.
