Gold Silver

Gold and Silver’s Shining Future

Both indices closed above the levels of the previous rebound at the end of March, further fueling the growth of foreign bourses at the start of trading on Tuesday.

The positives come from several directions at once. For the second day in a row, the number of new COVID-19 infections in the world is decreasing. In most European countries, the trend for reduction is confirmed. This is evidence that quarantine measures have the right effect by knocking down the spreading wave.

At the same time, the authorities of the most affected countries are not tired to declare new funds to fight the consequences. Italy has announced a new package of measures worth 400 billion euros to support small and medium businesses, increasing the overall package to more than 800 billion (about 50% of GDP).

US lawmakers are considering another package “for at least $1 trillion” in addition to the $2.6 trillion. Federal Reserve said it would allow banks to cash out loans issued under the program of assistance to small and medium businesses – a way to put money into the economy quickly.

These measures reduce the pressure on the markets, causing some weakening of the dollar. Of course, it’s too early to try to estimate whose incentives will be larger and faster to enter the economy. The answer to this question will help to understand the future trends of the currency market. Initially, the side, whose “supply” of currency will increase more strongly will feel worse.

At the same time, gold and other commodity assets may experience additional growth impulse on the background of widespread money printing by governments around the world.

For example, after the market storm in October 2008, the price of gold tripled within three years. We are witnessing similar processes now. Lower currency market volatility and a trend reversal on stock exchanges allowed gold to strengthen by $220, or 13%, in slightly more than two weeks.

Silver rose by almost a third at the same time, to $15 per ounce, recovering strongly from earlier losses.

After a reversal to growth in 2008, silver’s value increased by almost six times, from $8 to $50, twice as fast as gold.

Silver is much less considered an asset to save the value of capital. It is more affected by production trends, that makes it vulnerable to market collapse since late February.

Strong government support measures for business activity give hope for a V-shaped recovery in the industry, as we saw in China earlier this month. Together with the almost ubiquitous flooding of money, this will allow silver to turn towards growth, potentially more solid growth than gold.

by Alex Kuptsikevich, FxPro’s senior market analyst.