Gold and silver’s remarkable run in four charts

Gold and silver’s remarkable run in four charts

Ole Hansen

Head of Commodity Strategy

Key points

  • Gold and recently especially silver continues to race higher despite headwinds from rising yields and firmer dollar
  • We conclude that this remarkable strength is increasingly being seen as a hedge against a potential 'Red Sweep,' at the November 5 elections 
  • Silver has following a significant breakout last Friday now jumped to a 50% year-on-year gain

Over the past week, gold has surged to a new record near USD 2,740, marking a year-on-year increase of nearly 40%. Silver has following a significant breakout on Friday when it closed above previous resistance at USD 32.50 jumped to a 50% year-on-year gain. Throughout the year, we have extensively discussed why 2024 would be pivotal for investment metals. While this recent rally has exceeded expectations, several factors continue to support the upward trend, despite emerging challenges.

Key drivers of this bullish phase include concerns over fiscal instability, safe-haven demand, geopolitical tensions, de-dollarization driving strong demand from central banks, and uncertainties surrounding the US presidential election. Additionally, rate cuts—by the Fed and other central banks—are reducing the cost of holding non-interest-bearing assets like gold and silver. This environment is already spurring renewed interest in gold-backed ETFs, particularly from Western asset managers who had been net sellers up until May 2024.

Despite rising yields and a stronger USD, gold and silver have continued their ascent. Over the past week, the 10-year US Treasury yield rose by 17 basis points to 4.20%, while the Bloomberg Dollar Index gained 0.6%. Meanwhile, the timing, pace and depth of future rate cuts has slowed, with Federal Reserve officials signalling a more cautious approach. Yet, gold and silver remain resilient, defying these typically negative market signals.

Besides continued worries about a further deterioration in the Middle East, we conclude that this strength is increasingly being seen as a hedge against a potential 'Red Sweep,' where one political party controls both the White House and Congress. This scenario raises concerns about excessive government spending, pushing the debt-to-GDP ratio higher, while fueling inflation fears. Investors are turning to precious metals as protection, even as expectations for lower rates and easier financial conditions fade, as highlighted by the four key charts tracking this exceptional divergence.

  1. Rate cut expectations, as seen through the SOFR futures market, have seen hopes for another 50 basis points cut, followed by a total of 50 basis points at the following two meetings, cut in half so far.
  2. Gold’s attractiveness as an alternative non-yielding investment tends to depend on the prevailing opportunity cost—i.e., the alternative income an investor would earn through a short-term investment in secure government bonds. In the last month, reduced rate cut expectations have driven up the return on a 12-month Treasury bill.
  3. Gold has risen despite recent USD strength, which has been supported by Middle East haven flows and strong US economic data, driving flows into American risk assets.
  4. A year-long dislocation between gold and US 10-year yields has widened further this past month, with yields showing renewed strength amid worries the November election result may stoke concerns about looser fiscal policy, which may deepen the deficit and rekindle inflation.
Spot Gold - Source: Saxo
Spot Silver - Source: Saxo

Recent commodity articles:

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18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
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5 Sept 2024: 
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4 Sept 2024: 
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