Gold and Silver – Buy the Dip?

Bank forecasts are rising for gold’s year end price now after the latest SVB banking crisis. Citi raises their Q2 ’23 gold price forecast to USD 1,875/oz (prev. USD 1,800/oz); and Q3 to 1,900/oz (prev. 1,850/oz) and Q4 to 1,950/oz. ANZ have raised their gold price forecast to $2000 for year end and see 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 has sent the USD sharply lower from Friday last week and to start this one.

The third is the gold/silver ratio

The outsized gains for silver vs gold was 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 remains.
The Fed meet next week on Wednesday and traders will be keen to see whether they will start signalling 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 for more twists in the fall out from this SVB crisis remains very high.