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A knockout - one-two combination; a weak dollar and buying move gold and silver higher

Commentaries & Views

The precious metals scored dynamic gains today, as a one-two punch knocked out many short-sellers. This knockout is the net result of two primary ingredients; extreme dollar weakness, and aggressive buying by traders and market participants. The price moves in both gold and silver took those precious metals to levels not seen in nine years in the case of gold, and six years in the case of silver.

Gold futures scored a respectable gain today with the most active August gold contract gaining 1.35%, or $24.60, taking gold to $1842 per ounce. Spot or physical gold is running closely behind gold futures as it trades at $1841.5, a net gain of $23.67 or 1.3%.

Silver continues to have a stellar run-up to higher pricing. Today’s gains are really icing on the cake considering that silver was trading at $12 an ounce as recently as March and has in essence doubled in price since March 2020. Currently silver basis the most active September contract is up 7.2%, which is a net gain of $1.42, and currently fixed at $21.61.

As silver continues to outperform gold in terms of percentage gains, we have seen a tremendous contraction of the gold silver ratio. In March 2020 it took approximately 126 ounces of silver to purchase 1 ounce of gold. Today it takes approximately 87 ounces of silver to purchase 1 ounce of gold.

Today’s one-two knockout was a direct result of two primary factors. First was the steep decline of the U.S. dollar. The dollar index lost -0.65% today and is currently fixed at 95.15. The second primary factor is that traders and market participants have been actively accumulating and trading both gold and silver.

This recent buying frenzy comes as traders react to the news that the European Union has agreed upon $2.1 trillion budget and coronavirus relief plan. After a marathon negotiation lasting three days the leaders of the European Union agreed upon a recovery fund of €1.8 trillion. 

As reported in MarketWatch, “To confront the biggest recession in its history, the EU will establish a 750 billion-euro coronavirus fund, partly based on common borrowing, to be sent as loans and grants to the hardest-hit countries. That comes on top of the seven-year, 1 trillion-euro EU budget that leaders had been haggling over for months even before the pandemic.”

Studies indicate that gold pricing is within striking distance of a new all-time record high when paired against the US dollar. Based upon that information on a technical basis there is very little resistance in between current pricing and the all-time record high.

Today’s strong upside move in both gold and silver convey the belief by traders that the current level of global fiscal stimulus and central-bank quantitative easing coupled with zero to negative interest rates is the proper market environment to move both gold and silver to higher ground. We expect this trend to continue.

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Wishing you as always good trading and good health,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.