‘Mini-perfect storm’ for gold and a positive hurricane brewing for silver

Posted on 18 September 2015 with 1 comment from readers


Gold futures climbed again on Friday and eyed a solid weekly gain of around three per cent or higher, with analysts giving the credit to the Federal Reserve’s decision to keep interest rates at historically low levels.

‘Gold seems to be holding on to gains, and perhaps this is a mini-perfect storm for gold,’ said William Adams, head of research for Fastmarkets, explaining that ‘prices are low, other asset classes are relative high and interest rates will stay down for longer.’

Silver hurricane?

But then if gold was doing well its volatile sister was outperforming to the upside with prices set for gains of more than five per cent for the week, and a positive hurricane seems to be brewing in the silver camp. Remember 2008-11 when silver jumped from $8 to $48.50 an ounce?

Gold for December delivery was up two per cent to $1,140 an ounce at the time of writing on Friday, while December silver had leapt to $15.40 an ounce.

Analysts led by Goldman Sachs had previously emphasized that higher interest rates would hurt gold because it doesn’t pay interest, meaning some investors would step away from it. Plus, higher rates lift the dollar and a stronger greenback can weigh on dollar-denominated commodities as they become pricier for holders of other currencies.

In the event the Fed was having none of this, and the weary business of trying to anticipate when it will finally raise rates must start again. However, more stormy global economic clouds ahead could now kick rate rises into the very long grass.

Great expectations

To turn Goldman’s somewhat dubious logic – as gold has often risen with interest rates in the past – on its head, then surely gold and silver prices have only one way to go absent interest rate rises.

Hedge funds and other momentum traders are always on the look out for trading positions like this, where you just buy and ride the momentum upwards. Could it be that stocks will now continue to head downwards while precious metals step up into the great blue yonder?

The trend is your friend, until it is not.