Gold-Silver Ratio Widens
The stark contrast between gold and silver’s performance was a key feature of the week. As gold surged to record levels, silver’s lackluster response puzzled many traders. This divergence pushed the gold-silver ratio higher, suggesting potential undervaluation of silver or overvaluation of gold.
Dollar Strength and Yield Pressure
A strengthening U.S. dollar and rising Treasury yields played crucial roles in pressuring silver prices. The dollar’s rise makes silver more expensive for foreign buyers, while higher yields increase the opportunity cost of holding non-yielding assets like precious metals.
Industrial Demand Concerns
Unlike gold, silver’s significant industrial applications make it vulnerable to economic slowdown fears. Weak manufacturing data from China, a key metals consumer, raised concerns about future demand. This industrial aspect of silver contributed to its underperformance compared to gold throughout the week.
ETF Flows Favor Gold
Institutional investors showed a clear preference for gold over silver this week. Gold ETFs reported substantial inflows, while silver struggled to attract similar interest. This shift in speculative capital further widened the performance gap between the two metals.
Fed Rate Cut Expectations
Market expectations for Federal Reserve interest rate cuts have been a key driver of precious metals’ recent performance. However, the high certainty of a September rate cut (98% probability according to CME FedWatch) may have created a “buy the rumor, sell the fact” scenario, potentially trapping late buyers in silver and gold.
Source: Silver (XAG) Forecast: Gold Divergence Widens; Is Silver Undervalued or Overextended?
