Silver and gold surge alongside growing COVID-19 fears

Silver gold surge COVID-19 fears precious metals
COVID-19 fears and supply concerns have spurred silver and gold higher again this week.

The price of both silver and gold have risen to fresh multi-year highs with silver peaking at US$22.23 per ounce this morning and gold hitting US$1,847.10/oz.

The last time silver was this high in recent years was in June 2016 when it briefly surged on the UK’s shock Brexit referendum result.

Meanwhile, over the last 12 months gold has been repeatedly smashing new records, with the latest one peaking at US$1,847/oz overnight.

Silver futures were hit by the COVID-19 onslaught in March but have since climbed more than 50% since then, surpassing the 25% rebound for gold futures during that time.

Silver chart July 2020
Silver price chart in US dollars.

Meanwhile, global silver-backed ETF holdings rose 21% during Q2 2020 and hit a record this month – reflecting a trend seen in the gold market whereby investors buy gold-backed ETFs in an attempt to gain exposure to rising gold prices.

Based on Monday’s price action, it would take about 92oz of spot silver to buy 1oz of spot gold – a ratio that is higher than the average of about 69 over the past decade.

According to analysts at investment bank Goldman Sachs, there could be further gains in store for silver.

“Silver is currently trading at close to a record discount to gold, which should attract demand,” the bank said in a research note.

“[The precious metal] often tends to lag gold at the beginning of a precious metal rally and catch up to it as the rally continues and investors look for ways to diversify.”

Meanwhile, senior analyst Jim Wyckoff said an all time high for silver is not out of reach and could come “much sooner than anybody thinks”.

Metal allure

After falling in the wake of the global financial crisis, silver prices have remained resilient since 2013.

Since the advent of COVID-19, the metal has undergone additional demand from supply concerns and bets on increased industrial demand, currently used in solar panels and other manufactured products.

A report by S&P Global Market Intelligence, from the 275 mining operations disrupted by the COVID-19 pandemic, the most affected were gold and silver mines.

In Latin America, where much of the world’s silver is produced, S&P said the situation had “worsened”, with Mexico recently overtaking Italy in the number of virus-related deaths.

Gold has also experienced increasing demand along with tight supply.

Gold futures were last trading at $1,844.90/oz, pushed to a new highs with market analysts citing steady flows of “safe-haven and technically related buying” as primary reasons for the sudden spike in precious metal’s price globally.

The record settlement level for most-active gold futures stands at $1,891.90 from 22 2011 August while silver futures’ all-time settlement high was at $48.599 in April 2011, according to FactSet data.

Market parallels

In the equity market, often a key caveat in gold prices, US stock indices are currently enjoying a wave of better than expected corporate earnings reports that have seen several blue chips attract fresh bids in recent trade.

Technology stocks, in particular, have outperformed market expectations and have helped tech-focused indices such as the Nasdaq record the largest gains compared to all other indices in recent weeks.

The NASDAQ index closed at a high of 10,680 on Monday although several market analysts have pointed out that many participants remain apprehensive about the rising rate of COVID-19 infections being reported in several countries where recent lockdown measures have been relaxed.

Another macro factor weighing on market sentiment is ongoing negotiations over an all-encompassing European stimulus package. EU officials finally agreed upon a contentious $2 trillion economic rescue spending plan that will include the bloc issuing the first federal bond in its history.

Ironically, the common bond issuance could make the EU more cohesive in the coming years, after recent turbulence surrounding the UK’s decision to leave the union in 2016.

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