Last week we wrote about the gold to silver ratio. Our points were that it measures the price of one metal against the other, just as we use the dollars per ounce to measure daily metals prices, and just as we use ounces per Corvette to measure purchasing power preservation.
Also, we discussed the range of movement that silver has around gold over the past fifty years. We laid out notes for when to buy silver against gold, and when not to.
The Long Run Relationship Between Gold and Silver
Today we expand on the gold to silver relationship. Traditionally, gold moves first, with silver following but moving relatively more.
Since the 1970s, in all the big price moves studied, we find that although silver goes farther, gold leads the way by moving first.
This is so important because it means that silver investors can typically get a free look at the future before they need to commit money. It also shows that gold and silver respond slightly different to the same global events.
The two metals response to Covid-19 in 2020 is a great example of the gold price jumped higher prior to the move in silver.
2020 started as a normal year. In March the world began to fall apart because Covid-19 was spreading rapidly everywhere, there was no cure and little understanding of the related science.
Governments around the globe closed their economies as much as possible with the aim of preventing spread from one human to another. By early June 2020 governments made clear to everyone that they will replace lost income or wages or rent with money from the government. That message was everywhere!
Silver Set to Follow Gold
Gold got the message before silver. In fact, from June until August 2020 gold ran from US$1685 up to US$2065 per ounce. Gold investors quickly understood that governments did not have enough cash on hand to make all these income replacement payments, so more debt and more printing was coming.
Gold rallied more than 20% over this time period. But silver did nothing for over a week in early June while gold was running.
Why? Because silver is more tied to industrial production and GDP figures than gold is, so for over a week silver was trapped by the fear that maybe buying more silver because of new government debts and money printing would be a bad idea since the closed economy meant drops in physical silver demand for industrial use.
Silver roared to the party once gold moved far enough to show the new path was up. Silver moved more than 65% versus just 20% for gold!
Starting at the US $17.40 silver increased to $29.13 in those same 2 months despite waiting more than a week to get started.
To recap Q3 2020: gold moved first, silver moved second, gold went up 20%, but silver went up more than three times that!
It turns out that this pattern of events in 2020 is not unusual. If you study all the 20% price increases for silver and gold since 1975 the results are striking. On 85 different occasions, two metals rallied more than 20% in tandem.
On 60 of those 85 occasions, gold led silver by 3 days! Gold was moving up for 3 days before silver even moved at all. After adding up all the 85 occurrences and making some observations about the average. We see that a price move that pushed gold up 20% will mean that silver, on average moves up 39%.
Or double the percent increase of gold! Silver has been called the poor man’s gold because it is priced less per ounce, moves farther per ounce, and moves second. The lesson this week is to pay special attention when the gold price starts an up move, and silver just sits.
The likelihood that silver will begin to rise after gold is high. So, if gold is up four days running while silver sits. The math above hints that silver is planning to get itself caught up to gold’s rally and maybe even blow past it to run farther.
In our post on August 11 titled End of an ERA: The Bretton Woods System and Gold Standard Exchange, we discussed the significance of then-President Nixon’s action of closing the gold window thereby ending the Bretton Woods Monetary system.
Under the Bretton Woods monetary system, central banks could exchange their US dollar reserves for gold. This also ended the gold fixed price of US$35 per ounce.
This week we explore the two questions that concluded last week’s article: What role can gold serve in the international financial system in the future? And why do central banks continue to increase their gold reserves?
Starting with the latter question of why central banks continue to increase their gold reserves?
This is an important factor in the gold market and therefore
In our July 29 post titled How Gold Stacks Up Against Stocks, Property, Commodities and Big Macs! we showed readers charts of gold as a ratio to other assets and products. We discussed that gold competes with crypto and stocks for the investment dollars.
Central banks’ massive Quantitative Easing (QE) programs have come under scrutiny many times since the central banks fired up the printing press and began quantitative easing programs en masse after the 2008-09 Great Financial Crisis.
However, the increase in central bank assets due to quantitative easing programs during the crisis pale in comparison to the QE programs during the Covid pandemic.
As economies recovered after the Great Financial Crisis many worried that consumer price inflation would rise rapidly due to the extra liquidity in the market. A fear that never materialized as many economies stayed well below central bank inflation targets.
Quantitative Easing Leading to Financial Crisis?
The question being asked now is have these programs led to financial
There is sometimes a tendency to confuse ends and means. For example, in traveling through an airport there is extensive inspection of passengers. Before you are allowed to board an airplane, you must go through a process that is intrusive and increasingly invasive.
Today Gareth Soloway, Chief Market Strategist of InTheMoneyStocks.com talks about his technical analysis of gold and silver as well as giving us insights in to the recent moves in Bitcoin and the stock markets.
Recent comments from the Federal Reserve Chairman Jerome Powell indicated that they may need to raise rates in 2023 (2 years away!). This is primarily due to the continued excessive money printing fueling a surge in inflation. Inflation is no longer transitory but could remain high for some time. All this should have been positive for a gold bull market, but instead, we saw a $90 correction in the gold price. Gareth talks to Dave Russell on this episode of GoldCore TV, who asks; “Is Gold Still in a Bull Market?”
Watch the Video to Learn More
The difference between physical gold investing and ETF investing was stark in the first quarter 2021 according to the World Gold Council’s Gold Demand Trends data released last week. Before focusing in on investment demand below a few notes on overall gold demand in the first quarter.
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Gold Leads the Way for Silver
Published on September 10, 2021
Stephen Flood
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Gold leads the way
Last week we wrote about the gold to silver ratio. Our points were that it measures the price of one metal against the other, just as we use the dollars per ounce to measure daily metals prices, and just as we use ounces per Corvette to measure purchasing power preservation.
Also, we discussed the range of movement that silver has around gold over the past fifty years. We laid out notes for when to buy silver against gold, and when not to.
The Long Run Relationship Between Gold and Silver
Today we expand on the gold to silver relationship. Traditionally, gold moves first, with silver following but moving relatively more.
Since the 1970s, in all the big price moves studied, we find that although silver goes farther, gold leads the way by moving first.
This is so important because it means that silver investors can typically get a free look at the future before they need to commit money. It also shows that gold and silver respond slightly different to the same global events.
The two metals response to Covid-19 in 2020 is a great example of the gold price jumped higher prior to the move in silver.
Buy Physical Silver Now
Watch Gary Savage on GoldCore TV
2020 started as a normal year. In March the world began to fall apart because Covid-19 was spreading rapidly everywhere, there was no cure and little understanding of the related science.
Governments around the globe closed their economies as much as possible with the aim of preventing spread from one human to another. By early June 2020 governments made clear to everyone that they will replace lost income or wages or rent with money from the government. That message was everywhere!
Silver Set to Follow Gold
Gold got the message before silver. In fact, from June until August 2020 gold ran from US$1685 up to US$2065 per ounce. Gold investors quickly understood that governments did not have enough cash on hand to make all these income replacement payments, so more debt and more printing was coming.
Gold rallied more than 20% over this time period. But silver did nothing for over a week in early June while gold was running.
Why? Because silver is more tied to industrial production and GDP figures than gold is, so for over a week silver was trapped by the fear that maybe buying more silver because of new government debts and money printing would be a bad idea since the closed economy meant drops in physical silver demand for industrial use.
Silver roared to the party once gold moved far enough to show the new path was up. Silver moved more than 65% versus just 20% for gold!
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Starting at the US $17.40 silver increased to $29.13 in those same 2 months despite waiting more than a week to get started.
To recap Q3 2020: gold moved first, silver moved second, gold went up 20%, but silver went up more than three times that!
It turns out that this pattern of events in 2020 is not unusual. If you study all the 20% price increases for silver and gold since 1975 the results are striking. On 85 different occasions, two metals rallied more than 20% in tandem.
On 60 of those 85 occasions, gold led silver by 3 days! Gold was moving up for 3 days before silver even moved at all. After adding up all the 85 occurrences and making some observations about the average. We see that a price move that pushed gold up 20% will mean that silver, on average moves up 39%.
Or double the percent increase of gold! Silver has been called the poor man’s gold because it is priced less per ounce, moves farther per ounce, and moves second. The lesson this week is to pay special attention when the gold price starts an up move, and silver just sits.
The likelihood that silver will begin to rise after gold is high. So, if gold is up four days running while silver sits. The math above hints that silver is planning to get itself caught up to gold’s rally and maybe even blow past it to run farther.
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Under the Bretton Woods monetary system, central banks could exchange their US dollar reserves for gold. This also ended the gold fixed price of US$35 per ounce.
This week we explore the two questions that concluded last week’s article: What role can gold serve in the international financial system in the future? And why do central banks continue to increase their gold reserves?
Starting with the latter question of why central banks continue to increase their gold reserves?
This is an important factor in the gold market and therefore
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Central banks’ massive Quantitative Easing (QE) programs have come under scrutiny many times since the central banks fired up the printing press and began quantitative easing programs en masse after the 2008-09 Great Financial Crisis.
However, the increase in central bank assets due to quantitative easing programs during the crisis pale in comparison to the QE programs during the Covid pandemic.
As economies recovered after the Great Financial Crisis many worried that consumer price inflation would rise rapidly due to the extra liquidity in the market. A fear that never materialized as many economies stayed well below central bank inflation targets.
Quantitative Easing Leading to Financial Crisis?
The question being asked now is have these programs led to financial
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Recent comments from the Federal Reserve Chairman Jerome Powell indicated that they may need to raise rates in 2023 (2 years away!). This is primarily due to the continued excessive money printing fueling a surge in inflation. Inflation is no longer transitory but could remain high for some time. All this should have been positive for a gold bull market, but instead, we saw a $90 correction in the gold price. Gareth talks to Dave Russell on this episode of GoldCore TV, who asks; “Is Gold Still in a Bull Market?”
Watch the Video to Learn More
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