While much of the world is under some form of economic turmoil amid the coronavirus pandemic, the demand for precious metals has been steadily increasing. For the first time since 2016, silver futures reached $20 on Monday, despite falling to the lowest price since 2009 just a few months prior. In the two days since, the precious metal has continued its climb, with it currently breaking out above $22.90 at the time of writing after rising as high as $23.05.
The sudden uptake for silver can be attributed to the relationship between the silver/gold ratio and the Inflation Expectations ETF, which can serve as an indicator for the near-future prices of precious metals. Given that gold acts as more of a store of value relative to silver, its demand tends to increase when there is low confidence in a country’s currency. As a result, when there are expectations of an upcoming deflationary state, silver tends to significantly underperform gold. Conversely however, when expectations of an inflationary period are on the rise, then silver has a tendency to outperform gold.
Although the current economic status in the US has been reflective of a deflationary period since March, economic theory dictates that after a significant increase in the money supply – ie., the Federal Reserve pumping trillions of dollars to uphold markets amid the pandemic – inflation will soon follow suit. As a result, there is a strong indication that the rise in silver futures may become more prominent.
Information for this briefing was found via TSI. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.