Why Gold and Silver Diverge?

[adadadog]

Why Gold and Silver Diverge?

Both gold and silver are supposed safe heavens in market crash?

Why now the two are at extremes of the futures market, +3% and -3%?

My theory is that the market down turn is ending. Big money is slowing moving toward safe heaven; small account holders rushing into the two. But small account holders have more money in gold than silver due to excessive silver futures margin requirement, so silver futures is tanking and gold continues the up swing.

This is just my guess.

Any insights ?

 

[m22au]

Quote from adadadog:

Why Gold and Silver Diverge?

Both gold and silver are supposed safe heavens in market crash?

Why now the two are at extremes of the futures market, +3% and -3%?

My theory is that the market down turn is ending. Big money is slowing moving toward safe heaven; small account holders rushing into the two. But small account holders have more money in gold than silver due to excessive silver futures margin requirement, so silver futures is tanking and gold continues the up swing.

This is just my guess.

Any insights ?

silver futures margin has little or nothing to do with it.

gold's demand is largely from investment demand

silver's demand is from investment demand but also for industrial use.

If you're pricing in a slowdown in growth, or economic contraction, then it follows that there will be lower demand for silver.

Also consider that silver is still working through overhead supply following the decline from the early May peak.

 

[adadadog]

Quote from m22au:

silver futures margin has little or nothing to do with it.

gold's demand is largely from investment demand

silver's demand is from investment demand but also for industrial use.

If you're pricing in a slowdown in growth, or economic contraction, then it follows that there will be lower demand for silver.

Also consider that silver is still working through overhead supply following the decline from the early May peak.

I agree I neglected the industrial silver usage factor. But how much does it contribute to the divergence? Silver was following gold in past few days, and copper has more industrial usage than silver, but it is going positive this morning. Even index futures are positive.

 

[Ghost of Cutten]

Silver is not a pure crisis hedge, it is also an industrial metal. So, economic weakness is bad for it, whereas for gold it is a bull factor. Also, gold is more of the monetary metal/reserve asset, hence why central banks hold it.

Another issue is that silver had a huge speculative bubble earlier this year, so there are loads of specs and retailers still long, no doubt they had to liquidate some on margin calls from stocks in recent days/weeks.

All these factors mean that gold often gets a more reliable and better bid (on a vol-adjusted basis) in a crisis than silver does.