Gold News

Gold's Ratio to Silver Falls Near 6-Year Low as 'Reflation Trade' Fails to Spook the Fed

SILVER PRICES outperformed gold once again on Thursday, holding firm for the week so far and edging the Gold/Silver Ratio downwards even as gold rallied to show a 2.5% drop from last Friday.
 
With China's bullion market returning Thursday from the Lunar New Year holidays, gold prices bounced $15 in Asian and London trade from yesterday's drop near an 8-month low, recovering to $1775 per ounce.
 
Global stock markets meantime struggled for a second session after setting fresh all-time highs but Western government bond prices slowed their recent drop, capping the rise in long-term borrowing costs.
 
Key fossil-fuel catalyst and green hydrogen metal platinum held little changed for the week so far, trading at $1266 and avoiding the 2.5% drop seen in gold.
 
Heavily used in electricals and electronics as well as solar energy systems, silver rose further above $27 per ounce.
 
That strength pushed the Gold/Silver Ratio of the 2 formerly monetary precious metals back down towards start-February's 6-year low beneath 65.
 
The ratio of gold to silver prices last year hit new all-time highs amid March's Covid Crash in financial markets and economic activity, and it matched the peaks of the early 1990s' recession and 1930s' depression on an annual average basis.
 
Gold/Silver Ratio since 1968, daily data. Source: BullionVault
 
"It feels like any [risk asset] market you look at, investors want to buy," says Mark Lewis, chief sustainability strategist at French bank BNP Paribas' asset management division.
 
"The 30 years to 2050 will likely bring a supercycle in investments in clean energy infrastructure, clean transportation and everything else that is required to make the green transition possible."
 
US government bond yields today held little changed near 12-month highs after notes from the Federal Reserve's January meeting showed policymakers fear that inflation is "weighted to the downside" – contradicting market-based forecasts – because the Covid Crisis continues to "pose considerable risks to the economic outlook."
 
"No taper signals as of yet," says Dutch bank ING, referring to the potential slowdown of new Fed QE money creation and bond purchases.
 
So-called crypto-currency Bitcoin jumped to new all-time highs above $52,000 – spurring a new raft of bullish comments from players and investors in the sector – while China's CSI 300 share index re-opened Thursday to hit a new intraday record before retreating 0.7% for the session but still rising over 45.9% from this time last year.
 
Most European bourses continue to show a loss from February 2020 – start of the global Covid pandemic, lockdowns and economic crash – except for Germany's Dax, now up 2.0% over the last 12 months after setting a fresh all-time high on Monday.
 
The UK should issue British Recovery Bonds – bypassing the financial markets and giving private savers higher rates of interest than do bank accounts – to fund economic "rebuilding" from the pandemic, opposition Labour Party leader Keir Starmer said today, outlining his alternative plans to the Conservative Government.
 
Boris Johnson's administration already took national debt to 99.4% of GDP by end-December as tax revenues sank and government spending jumped during the Covid Crisis, the highest ratio since 1962.
 
"The reflation trade has been good for stock markets...driven by optimism around the recovery," says one spread-betting bookmaker analyst.
 
"But that will only continue to a point. If bond yields start rising at a rate considered too fast, sentiment will quickly change in stock markets."

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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