Where Do Gold And Silver Prices Go From Here?

Summary

• The price of gold moves inversely, not just to the interest rate but to the spread between interest and time preference.
• Now, near the zero bound, there is increasing divergence between the demand for dollars by the marginal saver and the marginal debtor. Thus gold price volatility, though generally higher rates tend to soften demand for gold and lower rates tend to drive demand for gold.
• A component of the demand for silver comes from economic activity, as compared to gold, whose demand is closer to the inverse of economic activity. In real terms now, the economy has contracted. Thus silver’s underperformance relative to gold.
• Silver tends to rise against gold during periods when the gold price is rising. So, we have three indicators that the gold price is likely to move higher: macro, supply and demand, silver relative supply and demand.

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One way to look at the price of gold is that it dropped from its high around $1,900 in early June. Another way is to zoom out and look at the big picture. Here is a 10-year chart