Gold/Silver: Two factors that drive silver in the third quarter

It was a month to forget in Precious Metals. If you are like me, waiting anxiously for that “final blast-off” to whatever number you have fantasized in your head that Gold and Silver could reach, it will have to wait another month. For me, it’s $3,000 in Gold and $49.99 in Silver to keep the narrative alive that the evil bankers and short sellers were able to “manipulate prices lower, screw the little guy and prevent $50 from happening.” I am, of course, joking.

Jokes aside, I take investing in Precious Metals very seriously. If you don’t know me, I ran one of the largest Precious Metals trading desks at some of the most powerful futures and commodities brokerage firms. If you have 5 minutes to spare every trading day, I put out a free, informative video covering the price action in Gold and Silver before the market opens. If you trade Precious Metals futures, this is a “no-brainer,” Register for a free two-week trial here: Get the Metals Minute.

Since my days in the early 2000s, the month of June has been historically unkind to the price of Silver. We have seen futures prices decline 13 out of the past 16 years. It is tough to find a recurring narrative when you look at long time frames. Silver faces two driving factors this year, which could drive prices back down to the mid-20s or blast off to $50. 

Daily Silver Chart 

The sell-off in Silver in June was primarily driven by the over-speculation in Copper, fueled by a supply/demand imbalance. Copper and Silver are two of the most impactful industrial metals that rely heavily on China to import and, in turn, produce something from it. The Chinese economy, simply put, went to “hell in a handbasket” in June, placing an outlook for the next quarter that is quite grim. The good news is that the second largest economy has a history of pride and tends to have a government that historically has stepped in and supported their economy. 

Economic data in the U.S. this month had deteriorated, and inflation has cooled. However, the rhetoric from Fed speakers has been bipolar at best. Hawkish speakers are reluctant to pivot dovish and are concerned that inflation may come back, causing the Fed to hold rates higher for longer. That type of jawboning supports the U.S. Dollar and acts as a headwind for Gold, and in turn, weighs in on Silver.  

Over the coming quarter, China will have no choice but to backstop its economy or risk it spiraling out of control. At the same time, the Fed will have to acknowledge the damage from higher for longer interest rates. We believe the combination will send commodities such as Copper, Gold, and Silver higher. To learn more about the developments and strategies we recommend to our clients, please register for a Free Guide by clicking Trade Metals, Transition your Experience Book.