Gold and silver in the endurance test

The nerves of gold and silver investors were strained this year. Despite several hotspots on various fronts, gold and silver have lost 8.4 percent and 16.6 percent, respectively, since the turn of the year (see table below).

As a crisis currency in the background

Image result for goldThe reasons why the two hard currencies, gold and silver, are currently unable to reap their benefits, are as follows: Confidence in the world’s most important currencies of major industrial nations and the belief in a sustained bull run in equities and real estate are currently too strong. However, in countries such as Argentina, Brazil, South Africa and Turkey, traditional crisis protection has brought joy to its owners. The local currency weakness has made gold massively expensive and has even led to new record highs in some crisis countries.

Investors in the field of wealth protection should therefore not be alarmed by the bad mood and consider investing in gold and silver as a strategic long-term position.

Both precious metals suffered in recent months from a massive sell-off of large-term speculators (non-commercials) on the futures markets. Week after week, the US Commodity Futures Trading Commission (CFTC) publishes important data on the transactions of various market players. This indicates who has become more optimistic, who has become more skeptical and who has become more pessimistic. For example, for mid-June large long-term speculators (non-commercials), the net long position (turned optimistic) has moved from nearly 50,000 contracts to a net short position (pessimistic on balance) of nearly 30,000 futures ,

In the case of gold, the big speculators have also switched sides and made a net short position of around 13,500 futures out of a net long position of over 120,000 contracts within two and a half months. Judging by this, one may almost interpret the associated price falls of both precious metals as relative strength.

Gold and silver in comparison

  year low year high current Perf (2018) Volatility Index (CBOE)
Gold (USD) 1,170.13 1,359.88 1,193.18 -8.40% 11.30%
Silver (USD) 14.12 17.70 14.12 -16.60% 19.20%

(As of 10.09.2018)

Mood is also in the ETF sector

Image result for goldPhysically backed ETFs on gold and silver also had to cope with significant outflows in recent months. This picture fits the outflows of global gold ETFs released for the month of August last week by the World Gold Council. Here are the following expressed: Especially North American investors are currently parting on a large scale of gold ETFs . In August, the outflows from this region amounted to 44 tonnes. In the three months before, there were already bleeds of 30, 44 and 25 tons for the months of May to July.

Overall, discharges of more than 64 tonnes have occurred since the turn of the year, while in Europe over the same period, inflows of almost 48 tonnes have been registered. Obviously, investors on this side of the Atlantic are much more risk-averse than those on the other side of the Atlantic.

In other words, perhaps on the continent marked by crises and wars, carelessness is less pronounced than on the other side of the Atlantic. However, anyone wishing to invest in gold and silver despite the undoubtedly adverse market environment should nevertheless be aware of the key features of the two crisis currencies.

Be sure to consider volatility

Silver is much cheaper than gold and is often disrespectfully referred to as the “poor man’s gold”. At the same time, its price fluctuation intensity (new German: volatility) is significantly higher than that of gold. This mathematical index is considered a recognized risk barometer.

The higher the volatility, the more attractive the potential yield opportunity on the one hand, but at the same time the risk of loss increases accordingly. If you want to use both alternative currencies for asset protection, gold should weight more heavily than silver. A ratio of 80 percent gold to 20 percent silver in this context seems to be a sensible mixture.