Gold And Silver Price Hugely Diverting From Commodities

That gold has been performing very strong in the last couple of weeks is no news. Gold (current price: $1339) is well on its way to challenge its 2014 highs at $1390 an ounce (approximately). Silver (current price: $21.44) has been performing even stronger as it is very close to challenge this year’s high at $22.00 an ounce.

The good news for the precious metals bulls is that the metals are not tracking the other commodities as of late. The following chart (courtesy: Stockcharts) shows the extremely strong positive correlation between the metals (gold in yellow and silver in grey) vs a commodities index (black line). That correlation is clearly broken since mid June of this year.

DBC_vs_GOLD_vs_SILVER_2012_2014

Gold and Silver are showing a huge and unusual divergence with commodities since mid June 2014

What this basically means is that the market is not considering the metals as “traditional” commodity at this point.

Does this signal a new trend? It could be, but more time is needed to get this confirmed. In the short run, it is clear that the traditional trend has been broken. Gold and silver being bid as safe havens is the most plausible explanation, given the recent rumblings in Europe, the instability in Iraq, the turmoil in Syria and Israel. Add to this the bearish undertone vis-à-vis the outlook of the US Dollar, created by the emerging markets (read: Putin) with the growing number of non US Dollar denominated (energy) contracts, and you have a cocktail of arguments to support the metals.

To which extent the underlying driver is essentially fear or monetary aspects is really not clear at this point, at least not in our view.

Meantime, sentiment towards the metals has been improving. Currently, gold has a Sentimentrader rating of 70 and silver 60, which is significantly better than the readings in the first week of June (gold 50 and silver 20).

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