A pick-up in the US dollar has delivered a blow to precious metals prices, with gold sinking to a two-month low and silver chalking up an 18 per cent decline so far this week.
Silver, the more volatile metal in price terms, fell 4 per cent to trade at a low of $21.64 a troy ounce on Thursday, while gold fell as low as $1,847.57 an ounce.
Precious metals and the dollar tend to move in opposite directions, as a falling greenback makes them cheaper in other currencies and draws in new buyers — particularly those who believe heavy US monetary stimulus undermines the buck. That has left the asset class vulnerable now that the dollar has snapped its recent downtrend and hit a two-month high.
“Neither gold nor the silver price could hold as the dollar strengthened,” said Jim Steel, an analyst at HSBC. To investors looking for a haven asset, the dollar “may have looked better value”, he added.
Concerns over a slowing global economy and a second wave of coronavirus have also hit silver, which has more industrial applications than gold.
“A resurgence of coronavirus cases in Europe has seen economic growth and deflationary risks return to the forefront, catalysing a breakout in the dollar, increasing volatility and simultaneously calling into question silver’s industrial prospects,” said Bart Melek, head of commodities strategy at TD Securities.
Silver prices rallied to a seven-year high above $29 an ounce in August, as investors considered the metal undervalued compared with gold. In March the price of gold was at a record 125 times higher than silver, but that fell to 70 times last month.
Adding to the latest weakness, silver-backed exchange traded funds have suffered outflows for the past three weeks, with holdings in the largest silver-backed ETF, the iShares Silver Trust, falling 4 per cent over the past month to 553m ounces.
“I can’t see a great deal of positivity in the stock market, which hits silver more than gold,” said David Govett, a veteran trader of precious metals.
Still analysts at Commerzbank said silver and gold had been oversold and the positive environment for the metals had not changed. It will be hard for the dollar to sustain its gains given the fact that the Federal Reserve has pledged to stick to its expansionary monetary policy, analysts at the bank said.
“It is obvious in our opinion that prices are more likely to be significantly higher than lower in the coming weeks,” they said.