Gold will continue to outperform silver - Tom Brady
Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!
(Kitco News) -Easing panic sentiment in financial markets is helping to boost silver prices above a critical psychological level of $15 an ounce, but one market analyst is not expecting the precious metal to outperform gold in the near-term.
Tom Brady, executive director of the J.P. Morgan Center for Commodities at the University of Colorado Denver Business School, said in a report for Murenbeeld & Associates, that safe-haven demand will continue to support gold prices while weak industrial demand will weigh on silver.
Silver’s 5% rally Monday helped the precious metal rise to a one-month high at $15.265 an ounce; meanwhile gold saw a 3% rally as prices push above critical resistance around $1,700 an ounce. According to Kitco.com, the gold:silver ratio is currently trading at 111 points, meaning that it takes 111 ounces of silver to equal the price of one ounce of gold.
Although the gold:silver ratio has climbed down from its all-time highs at 125, Brady said that he doesn’t expect the ratio to fall below 100 anytime soon.
“I am expecting the current global recession to persist well into the third quarter of this year followed by a slow recovery. As such, I am anticipating the ratio to persist (in the 100 range) over the coming weeks,” he said.
Traditionally, gold and silver prices have been closely correlated as both are seen as important monetary metals; however, Brady noted that since 2018 that correlation has broken down and now silver is following slightly more in copper ’s shadow.
“More recent silver prices appear to be less sensitive to moves in gold prices during the 1970s through mid-1990s, but more sensitive during the late 1990s,” he said.
Brady explained that physical demand data for silver show nearly 60% of demand came from industrial use. Only 15% of silver demand came from investor interest. Meanwhile, 30% of gold demand came from investors and only 7% came from industrial sectors.
Last month, silver prices fell to an 11-month low on acute fears that the global economy would be pushed into a recession or worse because of the spreading COVID-19 pandemic. Major governments around the world have closed all non-essential businesses and requested people stay at home to slow the spread of the deadly virus, which has bought the global economy to a near standstill.