Gold glimmers, but silver shines

Silver jumps, gold breaks USD2000

Gold staged an impressive two percent rally overnight, overcoming USD2000.00 an ounce on its way to USD2020.00 an ounce overnight high. Lost in the noise yet again, though, was the silver outperformance leading gold higher. Silver rose 7.0% to USD26.0000 an ounce. With the gold/silver ratio reverting to its long-term mean, a phenomenon that economists drool about, the ratio is not yet even remotely oversold on a monthly basis.

That implies that silver has more potential upside than its big brother. I note that gold is trading at record highs. Silver is trading at USD25.8300 an ounce this morning, with its record high being in 2011 around USD49.8000 an ounce. Before gold bugs globally, try me on the sacrificial altar of social media; both metals can, and likely will, continue to rise. Silver may just surprise everybody, though, with its potential for outperformance, even at these lofty heights.

The US dollar sell-off resumed overnight after a one-day hiatus. The usual suspects were at work. The US yields out to 10-years fell again, pushing real rates deeper into negative territory, and lack of progress by the House and Senate on a follow-up fiscal stimulus package. That, of course, was also the primary reason for the jump in precious metals. But it also supported energy prices after US crude inventories recorded another massive drop overnight.

Services PMI’s have been released across Asia today, with the data again either improving or maintaining expansionary territory. The results though, were more underwhelming than exhilarating, in contrast to the manufacturing PMI’s on Monday. China’s Caixin Services PMI notably fell to 54.1 from last month’s 58.4. That implies that the pace of improvements is slowing and the data in general highlights that employment and spending on services by domestic economies remains challenging, even as manufacturing recovers.

Indonesia will release its Q2 GDP at 1200 SGT, with GDP expected to have contracted by around 4.0% YoY. With Covid-19 remaining in full flight across Java, and social restrictions being extended endlessly, (where the author is based), Q3 is unlikely to show much improvement. Most of that bad news, though, is priced into Indonesian markets and the currency for now.

Singapore Retail Sales today are expected to paint an equally grim picture. The easing of circuit breaker restrictions will not have got Singaporean consumers to open their pockets for anything other than necessities. Consumer spending was already dire ahead of the pandemic, with the economic slowdown and job losses exacerbating the situation. There is unlikely to be a recovery in the City-state until later in Q4 at best.

The Bank of Thailand releases its latest rate decision this afternoon, with the BOT expected to remain unchanged at 0.50%. The central bank has already telegraphed it had finished with easing, and the decision should not be market moving. The Thai baht, having outperformed over the past three weeks versus the dollar, will struggle to strengthen past 30.80, even with a weaker greenback globally.

In the US this evening, ADP Employment and ISM Non-Manufacturing PMI. Both will be closely monitored, the ADP for clues as to the outcome of Friday’s Non-Farm Payrolls. Non-Manufacturing PMI to alleviate, or increase, concerns over a potential double-dip contraction in the US. Either, or both, data prints have the potential to move markets quite strongly one way or the other.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.

He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.

A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.

He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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