Three reasons for Gold and Silver’s appeal, but will it last?

Bank forecasts are rising for gold’s year-end price now after the latest SVB banking crisis. Citi raises its Q2 2023 gold price forecast to USD 1,875/oz (prev. USD 1,800/oz), Q3 to 1,900/oz (prev. 1,850/oz), and Q4 to 1,950/oz. ANZ has raised its gold price forecast to $2000 for year-end and sees very little downside risk. On Monday this week, gold moved 2.5% higher and silver went over 6% higher. So, what’s the appeal for gold and silver?

There are three drivers for Gold and Silver prices

The first is the fall in yields

With inflation still at high levels but the markets now expecting a Fed ‘pivot’, this would mean that real yields fall rapidly. The relationship between gold prices rising when real yields falling is strong.

The second is the falling USD

A weak USD tends to be supportive for gold and silver and the rapid expectations of a Fed pivot have sent the USD sharply lower from Friday last week to the start of this one.

The third is the Gold/Silver ratio

The outsized gains for silver vs gold were flagged with the gold-silver ratio pushing back above 90.

When the ratio is high it shows that silver is trading cheaper relative to gold. A big move higher in the gold/silver ratio can often flag a large move coming. Silver could well outperform gold if the falling yields and falling USD environment remain.

The Fed meets next week on Wednesday and traders will be keen to see whether it will start signaling a pivot in rates or not. These are uncertain times, so expect some volatility in asset classes, but the mood has turned very positive for buying gold and silver on the dips. However, the risk of more twists in the fallout from the SVB crisis remains very high.

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