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Weekly Market Brief: May 16, 2019

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The following is a market update as it related to precious metals prepared by SchiffGold intern commodities analyst Jason Mezhibovsky.

Trade War

Although some pressures on US equities from the trade war have been eased, the S&P 500 is down about 3.8% since the end of April. Stocks rebounded Wednesday with the news that the US and China seem to to be making some progress with trade deal talks and that the US may delay some auto tariffs on the EU.  The Dow was up 115 points and the S&P 500 picked up 16.55 points Wednesday. But stock markets still have not recouped all of their losses from the pressure faced these past two weeks.

Gold has remained fairly in place in terms of price movements during this whole ordeal, coming out much less risky, if not overall “better*” (*subjective term) over equities. Gold has crossed the psychologically important $1,300 mark a few times, but has not been able to hold that level. Gold has also remained fairly stagnant even as the uncertainty associated with oil and the events related in the past few weeks.

Price Movement

On Monday, May 13, gold got a slight boost and managed to briefly climb above $1,300. Much of this was due to the fact that equities were taking a massive hit, with the markets making a big move downward. It also moved above that level on Wednesday.

Currently, there is a high level of selling of gold derivatives on the futures markets, which can be in part attributed to gold’s stunted rally. However, many central banks are still importing relatively large amounts of physical gold to keep in their reserves and this is a plus on the demand side of the column. Overall, gold demand was up 7% in the first quarter.

Institutions such as hedge funds and others that have an influence over the price of gold may begin to look at gold as a favorable option over equities. This is a strategy deployed in times when gold is outperforming indices, which it has been doing recently.

US Dollar

In terms of technicals, the dollar recently moved below its 15-day SMA, showing a weaker dollar overall. This could be a sign (in terms of technicals at least) the in the short-medium term the dollar could begin trending lower.

Gold-Silver Spread

Recently, the gold-silver spread achieved a ratio of 88:1. This is the highest level since 1992. This ratio means that based on the current spot prices of gold and silver, it would take 88 ounces of silver to buy 1 ounce of gold. In modern times, the average for this ratio has been 54.33:1 – typically, whenever the ratio moves below 55:1, silver is seen as expensive (less silver for 1 ounce of gold, vs. when you can get more silver eg. higher ratio), and when it moves higher it as seen as cheap. In essence, an 88-1 silver-gold ratio is silver on sale.

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