The gold-silver ratio expands
The stark contrast in the performance of gold and silver has been a key feature of this week. As gold prices soar to record levels, silver's lackluster reaction has left many traders confused. This discrepancy pushes up the gold-silver ratio, indicating that silver may be undervalued or gold overvalued.
Stronger dollar and pressure on yields
A stronger dollar and rising U.S. Treasury yields weighed on silver prices. A rising dollar makes silver more expensive for foreign buyers, while rising yields increase the opportunity cost of holding non-yielding assets like precious metals.
Industrial demand concerns
Unlike gold, silver's important industrial applications make it vulnerable to concerns about an economic slowdown. Weak manufacturing data from major metals consumer China has raised concerns about future demand. Silver's industrial aspects contributed to its underperformance this week compared to gold.
ETF fund flows favor gold
Institutional investors have shown a clear preference for gold over silver this week. Gold ETFs reported significant inflows, while silver struggled to attract similar interest. This shift in speculative capital further widens the performance gap between the two metals.
Fed rate cut expectations
Market expectations for interest rate cuts from the Federal Reserve have been a key driver of precious metals' recent performance. However, the high degree of certainty of a rate cut in September (98% chance, according to CME FedWatch) could create a “buy the rumor, sell the fact” situation, which could trap late-stage buyers of silver and gold.
