(Kitco News) – Gold prices have seen an atypical rally in the face of shrinking rate cut expectations while silver has largely been left behind, according to the latest report from Erik Norland, Executive Director and Chief Economist of CME Group.
“Gold has soared to new record highs in April,” Norland wrote. “Meanwhile, silver has rallied but it's far from its all time high.”
Norland pointed out that gold prices usually do the opposite of what interest rate expectations do. “When bond traders expect more rate cuts, gold typically rallies,” he said. “When they expect fewer rate cuts, or more rate hikes, gold usually falls.”
“In the past couple of months however, gold has rallied despite Fed Funds futures depricing many of the cuts that traders had previously expected for 2024.”
Norland asked why gold has rallied while rate cut expectations have declined from six potential cuts down to only two or three. “It appears that one or more large investors has taken a long position in out of the money call options on gold, sometimes with strike prices as high as $3,000 per ounce,” he wrote, “perhaps positioning themselves either for large rate cuts that are not currently anticipated by bond traders or for increased geopolitical instability.”
Norland said that this gold rally’s failure to boost silver prices to the degree it has in the past “may be an indication that either the gold rally is overextended or that silver has substantial catching up to do on the upside.”
He still sees potential for silver to catch up against gold, however. “As of early April, one ounce of gold buys about 84 ounces of silver,” Norland noted. “In 2011, one ounce of gold bought as few as 30 ounces of silver.”
“In other words, silver was once more than twice as expensive in gold terms than it is today.”
“That said, silver has far more industrial uses than gold and has probably been held back by soft growth in China,” Norland concluded, adding that the gray metal “may also be more threatened than gold by the potential for a global slowdown in the face of tighter central bank policy.”
Spot silver traded as high as $28.790 on Wednesday morning, but it has since pulled back somewhat, last trading at $28.300 for a gain of 0.78% on the session.
