Gold and Silver Price Divergence On Full Display This Week
As Gold Falls Over Another $100, While Silver's Actually Up 60 Cents
The recent divergence between the gold and silver price continued on Wednesday, with what may be the most extreme diversion between the two precious metals that we have yet seen.
For months investors have been wondering when silver would finally start catching up with gold’s historic run. And in the past week and a half, we've seen gold have several $100 plus days higher, while silver often had a hard time cracking even a 50 cent gain.
Yet fortunately for the silver investors, we've seen a continuation, and even escalation of that stunning divergence as the gold price has fallen $200 in the past few days. While meanwhile the silver price is actually rallying today along with the stock markets.
I'm looking into some historical records to see if this is officially the most extreme divergence in a single day.
But there haven't been all that many $100 plus moves in gold trading history, and I'm guessing that silver was not up or down 60 or 70 cents in the opposite direction on any of them. But I will keep you posted as I find any official confirmation.
In terms of why we’re seeing this divergence, I think the primary answer is that right now we’re actually seeing a heavy global monetary premium return to the gold trading, whereas that has yet to manifest for silver.
Which is not to say that it won't. As similar to how if you went back 10 years ago after the gold price had fallen from the 2011 $1920 high, it probably would have seemed hard to believe that a decade later we would see the record accumulation of gold by central banks.
So I say this to highlight that perceptions change, especially over time. And especially with what are often highly emotionally-viewed assets like gold and silver.
I've also wondered over the past year what it would take for more people outside of the existing gold and silver community to start actually purchasing physical precious metals.
We've seen that happen when the banks collapsed in 2023, and on that Monday last year when the Nikkei was down 12%. Those are the days when retail gold and silver dealers were actually doing a lot of volume.
I've also wondered if another round of inflation, like the one we just lived through, could accelerate that transition. Sadly, it seems like we are on track to find out soon enough.
Yet that is what could happen, not where we are now.
And while there is growing evidence that some of the current perceptions of silver could change as well, so far, for the most part, the central banks have only been buying gold. And I think it would be wise to continue to be prepared for stretches like this, where the gold and silver trading are not as correlated as they have been for most of the past 10 or 20 years.
We also have a few updates from former JP Morgan precious metals managing director Robert Gottlieb.
In this first one, he comments on what I have written about frequently over the past month, in terms of how the banks had reached some extreme short positions, especially on the silver side, right before the sharp sell-off following the April 2nd reciprocal tariff announcements.
As we discussed back then, it was a high probability that the banks were covering a lot of those short contracts, and that was indeed the case.
I've listened to one of Robert's interviews, in addition to reading many of his posts, and he often expresses that these short positions are offset by physical hedges in London.
Obviously he was a lot closer to internal bullion bank trading operations than I am, although I would say that there is a wide range of opinion on that one. And I still don't internally assume that the banks are necessarily all anywhere near 100% hedged.
Yet nonetheless, this one did play out in the manner that both Robert and I had been expecting.
He also commented on another phenomenon that’s worthy of keeping an eye on (which of course we will continue doing for you here), in referencing how after all of the gold and silver flowed to New York, now it has started to leave.
Here you can see the chart of the COMEX warehouses, and how the gold flows have started to reverse.
Still a lot in there for now, but definitely something to keep an eye on (especially with the possibility that the US might start settling its trade deficit with India with gold and silver).
A few final notes before wrapping up for today.
Worthwhile to see one of Europe's financial ‘watch dogs’ come out at this particular time and question the US Treasuries’ ‘safe haven’ status.
“The head of Europe’s insurance watchdog said the US Treasury market’s recent volatility is bringing into question its status as a safe haven.
Petra Hielkema, the chair of the European Insurance and Occupational Pensions Authority, made the comments last week as part of a presentation on behalf of EU financial supervisors, according to people familiar with the matter.
The striking assessment at a closed-door meeting hints at some of the nervousness about Treasuries, which have served as the world’s ‘risk-free’ asset and act as collateral for trillions of dollars of lending a day. While there’s no indication that European regulators are taking any concrete action yet, the comments underscore how quickly the world’s perception of Treasuries has changed in the span of a few weeks.”
If now even US allies are questioning the ‘safe haven’ status of the US Treasury, who does that leave left to continue buying them?
At a time where the supply is only set to increase.
And another story that seems somewhat fitting, given what's happening between the US and China right now (as well as through what China sat there and observed ever since sanctions were placed on Russia in 2022), is that China actually sanctioned several US Congress members.
“China is sanctioning several U.S. Congress members, other government officials, and heads of nongovernmental organizations for what the regime has called “egregious behavior on Hong Kong-related issues,” its foreign ministry said on April 20.
The sanctions are in response to Washington’s sanctioning of six Chinese and Hong Kong officials in March for their alleged involvement in transnational repression and acts threatening to further erode Hong Kong’s autonomy.”
Years ago I used to wonder how western politicians would react if other countries ever gained the leverage to be able to respond with similar tactics.
Now it seems like we’re finding out.
Ultimately, you would think at some point that some sort of trade deal between the US and China will be reached. And I know that's what's floating through the mainstream headlines today.
Although damage has already been done in the process, as evidenced by the continued reports of supply chain issues that are starting to pop up now.
But hopefully all of that helps put some context around the rather rare trading patterns we’re seeing today, particularly in gold and silver.
If you feel confused by some of the moves, just remember that so is just about everyone else. Right now no one knows what tomorrow’s rules will look like, and you can expect to see that reflected in higher than normal volatility levels.
Although perhaps that's what makes this such a great time to understand what you think, and what you see coming. And then feel confident as you make whatever preparations or decisions are ultimately most appropriate for you.
Sincerely,
Chris Marcus
Trump said yesterday - we have a deal with China
Enjoyed this article, great recap Chris...Thank you!