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.  

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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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From the Trading Desk

Stock Update:

***Silver coins for Ireland – Delivery and Storage at new lower premiums****

Silver coins are now available for delivery or storage with the lowest premium in the market.

Starting as low as spot plus 30% for Silver Britannia’s & Silver Philharmonics starting at 32%. 

Silver Britannia’s for UK delivery or storage are still available at the lowest premium in the market also (which includes VAT at 20%).

These can now be purchased online. 

We have also recently added Gold 250 Gram & 500 Gram bars. These are available for storage and delivery starting at spot plus 3.2% for the 250-gram bars & 3.1% for the 500-gram bars. 

Excellent stock and availability on all gold coins and bars with 1oz bars at a very competitive 3.75% over Spot. 

Krugerrand are currently the lowest premium on 1oz coins at Spot plus 5.5%. Gold Britannia’s 1oz Coins start at 6.5% over the spot. 

Silver 100oz and 1000oz bars are also available VAT-free in Zurich starting at 8% for the 1000oz bars and 17.5% for the 100oz bars. 

Please see below our extended trading hours. 

** We have extended our opening hours. Phone lines, online ordering and WebChat are now open until 09:00-22:00 (Europe/Dublin) USA 09:00 to 17:00 EST**

Market Update:

We had the US non farm payroll numbers last Friday, a huge miss with 235,000 jobs created versus 720,000 expected.

Gold rallied over its 200-day moving average and closed out the week at $1827. 

However, gold has been under a little pressure this week and we are back just below $1800 again due to a stronger USD and by the continues, Fed tapering woes and virus led economic fears.

Dallas Federal Reserve Bank President preferring to taper as soon as possible, even making a case for as soon as October. 

The ECB meeting takes place today, it’s expected the ECB will dial back the Pandemic Emergency Purchase Programme (PEPP) but it will be more the comments that come from the ECB in regards to the EU economic performance and any scope for tightening of monetary policy that will be looking for. 

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GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)

08-09-2021 1797.95 1786.00 1306.57 1297.53 1521.25 1511.49
07-09-2021 1810.75 1802.15 1310.26 1307.10 1525.01 1520.65
06-09-2021 1823.85 1821.60 1318.10 1317.02 1538.05 1535.06
03-09-2021 1812.05 1823.70 1309.39 1316.53 1526.11 1534.46
02-09-2021 1815.15 1812.55 1316.53 1311.74 1532.17 1528.52
01-09-2021 1813.90 1811.80 1318.89 1314.82 1535.10 1530.61
31-08-2021 1814.30 1814.85 1317.18 1316.49 1534.17 1534.82
27-08-2021 1795.50 1798.50 1310.72 1307.15 1527.61 1525.67
26-08-2021 1783.80 1786.60 1298.43 1302.43 1516.23 1520.04
25-08-2021 1794.70 1788.70 1307.80 1303.60 1527.29 1521.83

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