I Still Like Silver For The Long Haul

over 3 years ago

Instead of looking at financial markets or asset classes on an individual basis, intermarket analysis looks at several strongly correlated markets or asset classes, such as stocks, bonds and commodities. This type of analysis expands on simply looking at each individual market or asset in isolation by also looking at other markets or assets that have a strong relationship to the market or asset being considered. In the case of the US dollar and silver prices, they are inversely correlated.

When the value of the US dollar rises, the price of silver rises and higher prices tend to dampen demand. Conversely, during periods of dollar weakness the price of silver tend to fall and lower prices tend to increase demand.

Over this last month the US dollar has been on an absolute tear. On September 1st, the dollar sat at $91.70, but today the US dollar sits at $94.38. That a nearly 3% gain in less than 30 days. That's a big move in terms of currencies.

Reduced inflation and stimulus expectations are combining with a notable uptick in coronavirus cases in the U.S. and especially in Europe where there is fear a second wave of the virus could again cause businesses to close and dent the global economic recovery.

The intrigue: That would normally provide a boost for bond prices and precious metals, but gold and silver are instead following inflation expectations lower. And government bond yields have fallen nearly as low as they can without the Fed resorting to negative interest rates, says Subadra Rajappa, head of U.S. rates strategy at ‎Société Générale.

What to watch: Gold and silver prices have fallen meaningfully in the last two weeks, with gold down 5.5% and silver down 18% since Sept. 1. But Axel Merk, president and portfolio manager at Merk Hard Currency Fund, says he expects this will be a bump in the road on the way higher.

Source

I tend to agree with Axel. Just today, House Democrats are preparing a new, coronavirus relief package expected to cost about $2.4 trillion. Once approved, that means the US dollar will continue to move lower. That means the price of silver will continue a new leg higher. Ideally, what I would like to see is a close above $25 before being convinced that prices want to move higher.