Precious Metals

Gold Investing

Gold and silver prices dropped on Monday in the wake of the US and Mexico coming to an agreement and stopping a potential trade war.

Both gold and silver were sent on a downward trajectory when US President Donald Trump announced on Monday (June 10) that he will not be imposing trade tariffs on Mexico. The news lifted the US dollar and moved investors away from precious metals.

The yellow metal dropped by just over 1 percent, while silver lost all of the gains that it made last week, dipping more than 2 percent on Monday.

“Global equities are rallying across the board and we are seeing liquidation on safe haven demand,” Phillip Streible, senior commodities strategist at RJO Futures, told Reuters.

“Gold (and silver) futures are backing off and the dollar index is rallying and prices are burdened with the Mexico tariffs,” he added.

The US and Mexico came together to strike their deal on Friday (June 7), preventing a potential trade war and ending tariff talk. For Mexico’s part, it has agreed to help reduce the number of illegal Central American migrants attempting to go into the North American superpower.

The deal has created more global stability, pushing investors away from gold and silver — known for their safe haven properties — and increasing their faith in the greenback.

“Trader and investor attitudes are more upbeat to start the trading week after the US and Mexico late Friday reached a deal,” said Jim Wyckoff, senior analyst at Kitco.

Despite the decline, gold has managed to stay above the US$1,300 per ounce level, as it is still supported by ongoing trade war concerns on the US-China front.

“Gold futures will continue to rise, so long as the yield curve continues to remain inverted. I’d like to see gold remain above US$1,320, with US$1,310 being a critical support level,” Streible noted.

Silver, however, has slumped to levels below US$15 per ounce, as the metal continues to be largely ignored by investors. In fact, the gold/silver ratio heavily favors the yellow metal, currently sitting at 91.5:1.

However, some market watchers believe that the white metal is still due to outperform gold before the year comes to a close. According to David Morgan of the Morgan Report, now is the perfect time to purchase silver before it begins an almost inevitable climb towards the end of Q4.

“I think silver is the place to be from this 90 to 1 ratio. You don’t have to jump in all at once, if it does go to 100, but certainly accumulate silver at these levels, you’re buying it for less than most primary silver miners can produce it. You’re getting it at a ratio that’s a historic good value,” Morgan told FXStreet.

“This is a once in 26 year opportunity, we haven’t had this high of level, gold-silver ratio for 26 years. And it usually doesn’t stay here very long. So I think everything that we know, from past events, we obviously can’t use to project the future, but certainly get a hint that now’s a good time,” he added.

However, many agree that before silver can take off, gold prices have to rise to higher levels. In a recent client report, UBS Global Asset Management states that the current gold/silver ratio should be appealing to those looking into silver, either for the first time or to add more to their portfolio.

“With the ratio continuing to rise in gold’s favour, recently touching 90, there have probably been a few more questions largely around whether this signals a buying opportunity for silver in a scenario where gold is looking more positive,” noted Joni Teves, strategist at UBS.

“The challenge is that it will probably take much stronger conviction that gold would break the topside of the broad range this time around in order for investors to feel more comfortable expressing that view in silver as well,” she added.

As of 3:30 p.m. EDT on Monday, gold was down 0.93 percent, trading at US$1,327.50; meanwhile silver dropped 2.23 precent, trading at US$14.67.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.



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