Since the Covid-19 stock market shock, L’Or has been scaring investors by breaking records.
The previous record for Gold was at $ 1920 an ounce and dated back to 2011. The yellow metal did not wait for the crisis of the new coronavirus to be in an uptrend on the stock market, as shown by the long chart term that is found below. Constructed on a logarithmic scale, this graph is a reminder that Gold has been bullish for decades and that, closer to us, the positive momentum was revived in 2018 with the trade war between the United States and China.
This trade war and its consequences on world activity have led the large central banks to adopt a monetary policy of interest rates tending towards zero, even negative, a credit market pattern very favorable to assets which do not “pay” not through interest, as is the case with Gold.
But it is despite everything the Covid-19 that generated the impetus that allows the safe haven to set a new historic record this summer against the US dollar, whose money supply has soared vertically in recent months according to the M2 aggregate which refers to the monetary objectives established by central banks. Gold would thus increasingly be a hedge against the intrinsic loss of value of conventional currencies struck by central banks.
In fact, it is the precious metals compartment within the commodities asset class that has attracted capital in recent weeks. At the level of institutional traders, it is futures contracts and options contracts on the price of Gold and Silver on the Chicago Stock Exchange that see long positions growing.
The yellow metal is not the only one to have appreciated this summer. The price of Silver has seen an upward impulse that is even significantly more consistent in relative terms. Between July 1 and its highest price reached in early August, the precious metal gained more than 60%, compared with 17% of an ounce of gold.
In July, therefore, there was a phenomenon of capital displacement from the yellow metal to its faithful second, and it was the institutional traders who are largely the source. The histogram below shows the weekly evolution of the buy and sell contracts held by pro traders on Silver futures and options; from the beginning of May their buying exposure started to grow.
The open position in Gold and Silver via various financial derivative products is on record with a volume that exceeds that of the physical market over one year.
ARE THE TECHNICAL OUTLOOK STILL BETTER FOR THE END OF 2020?
Yes, they are, but the signals given differ depending on whether it is Gold or Silver. For the former, breaking past historic highs is a bullish signal that engages theoretical bullish targets. For the price of Silver, it was the breach of $ 20 that constituted a strong bullish signal in mid-July, the same technical signal as in 2010 and which had allowed to approach $ 50.
SHOULD WE PREFER GOLD OR SILVER?
The technical analysis of financial markets makes it possible to make the choice of Silver with the caveat that this market is less liquid than that of Gold. The graph below shows the curve of the SILVER / GOLD ratio, that is to say the mathematical fraction between the two precious metals. A bullish curve indicates the best relative behavior of the numerator, here silver. This new bullish phase is strongly reminiscent of the year 2010 when the market hit $ 50; this is the technical target for the next few months.