Gold and Silver Prices BALLOON – What’s Going On?
Gold and Silver Prices
The US gold and silver prices continue to balloon this week. First of all, the gold price broke through first $1850, then $1900 within two days. In addition to that, the silver price exceeded $20 on July 20th, then saw $21, $22, and $23 in subsequent days. While the silver price doesn’t seem very significant, silver actually increased faster than the gold price. So we can conclude that silver currently outperforms gold. But what exactly is driving this change?
The Climate for Rising Gold and Silver Prices
Weakening US Dollar
First of all, one major influence on gold and silver prices is the weakening US dollar.
On this chart, the blue line represents gold, and the orange line is the US Dollar. In 2020, gold clearly has far more strength than the dollar in 2020. This is not very surprising since gold and the dollar share an inverse relationship.
But why is the US Dollar strength falling? Simply put, the COVID crisis is drowning the US dollar because the Fed keeps printing money. Fiat currency is backed by the government who assigns its value. Its value decreases when there is too much, known as inflation. The dollar carries a risk of becoming worthless in this case. However, gold and silver prices are reacting to the second wave of COVID, and investors seem to realize that the true economic fallout hasn’t even started. Most notably, inflation is also not yet fully realized because the economy is not completely reopened.
Additionally, overvalued equities weigh heavily on the US gold and silver price. We understand this because the Federal Reserve and European Central Bank’s balance sheets expanded to about $14.03 trillion. This expansion of fiat currency also directly affects equities. But, as the gold and silver prices grow together, all that can get in the way is a sudden cure for COVID-19 or a U-shaped recovery.
COVID Resurgence & Unemployment
Precious metals are “safe haven” assets. This is because these metals are rare, highly liquid, low-risk, and carry their own values—AKA intrinsic value.
The production of precious metals is controlled, which means supply is balanced. This in turn helps retain the gold and silver prices. But, COVID is another major factor that helped spike gold and silver prices. This additionally includes platinum, which saw some moderate gains this week.
Because COVID cases are on the rise, investors continue to worry about the future value of their assets. And as we know, when investors worry about the future of the economy, they often turn their gaze to gold and silver. Investors new and seasoned stress over the stock market at this time, particularly because this marks the 18th-week in-a-row rise of new unemployment claims. So, at this time, many seasoned collectors are stocking up, and new investors begin to buy gold and silver today. This saturated demand helps augment not only the gold and silver prices, but also all precious metals.
Oil vs. Gold and Silver
Commodities of all kinds also affect the gold and silver prices. The primary commodity making headlines at this time is oil. This week, there was an unexpected rise in US Crude inventories, but demand is falling as coronavirus cases re-sweep the country. On top of that, crude inventories rose. Basically, demand is once again falling off, and consequently, the supply rises. What this means is that recovery for oil will most likely take time. But investors, rightfully so, want to make profits off their invested commodities. Now, they turn to gold and silver.
Politics also hugely affect the oil price at this time. The new dispute between Washington DC and Beijing puts oil under even more added pressure. The latest development in the US-China conflict is the US mandate to close the Chinese Consulate in Houston, TX. China’s retaliation on 7/24 was to shut down the Chengdu American Consulate.
But what does this mean for oil? Basically, China buys oil from the US. If the shaky trade deal is not honored in the future, the US will most likely have a surplus of the oil supply with lower demand. If a vaccine to cure COVID-19 is speedily found and widely distributed, the oil price will likely be able to recover. But for now, further cuts to oil production will see a plummet from 9.7 million barrels per day to 7.7 million barrels in August internationally.
So…Is Now a Good Time to Buy Gold and Silver?
In short, the factors that weigh on gold and silver prices include:
- Rising COVID cases
- Continued rise of unemployment
- Weakening USD, especially because of inflation
- Oil supply increases and the weakening demand, in conjunction with the escalating tensions between the US and China.
With today’s volatile economic climate, is now really a good time to buy gold and silver with such high prices? Well, if you can afford it, it just might be a good idea to start stacking. This way, you develop a strong wealth hedge against inflation that will take a massive blow to the economy.
The silver price is highly attractive because it is simply more affordable for more people than gold. So, not only are there more investors and more demand, but also silver is finally responding to gold’s COVID rise thanks to the gold-to-silver ratio.
Back in March, the gold-to-silver ratio saw a high of 125:1. But now, it is much lower—around 83:1. Within a span of four months, this degree of change is truly noteworthy.
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