Another Stock Market Selloff Could Drive More Bullion Buying

Investors got a look at first-quarter GDP, and it wasn’t pretty. The U.S. economy contracted by 4.8%, even worse than the 3.3% decline anticipated by economists.

In addition to that bad news, 4 million more Americans filed for unemployment last week. More than 30 million people have lost jobs over the past 6 weeks, and the situation is only getting worse.

The S&P 500 lost 2.8% on Friday.

Perhaps equity investors are beginning to wonder if share prices, which have moved relentlessly higher in recent weeks, accurately reflect the dismal economic data.

Warren Buffett certainly is. The famed investor announced his company, Berkshire Hathaway, had sold all of its holdings in four U.S. Airlines and sounded a generally bearish tone in his annual letter to shareholders.

A new wave of selling and turmoil in the stock markets could drive a new wave of demand in the physical gold and silver. It is something for gold bugs to watch closely.

Physical inventories remain tight, and premiums are already high. A new rush of buying will only exacerbate the scarcity problem in coins, bars, and rounds.

Silver is historically cheap relative to gold. The gold/silver ratio – the gold price divided by the silver price – reached all-time highs in March. Today the number of ounces of silver it takes to buy one ounce of gold is at 113 – very close to those highs.

Metals investors are wondering whether or not opportunity is knocking.

The fact is that silver has looked like a bargain relative to gold for a long while.

The gold/silver ratio consistently fluctuated between 70 and 90 over recent years. Even those levels were high relative to the historical average.

Unfortunately markets these days are far more likely than ever to punish people for making perfectly rational investment decisions.

The gold/silver ratio in the high 80s at the beginning of 2020 implied silver was the greater bargain, but investors who bought silver instead of gold lost ground when the pandemic panic hit.

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Kirk Sheffield 4 months ago Member's comment

Depends if folks get the Margin calls and are forced to sell the $SLV and $GLD to pay for their lack of risk management.

Wall St. Wolf 4 months ago Member's comment

I would hope the margin call selloffs were flushed out in the first wave down a month ago, hopefully in a second wave down people wouldn’t be levered as much.

Dainan Gilmore 4 months ago Member's comment

Seems like people never learn so yeah, silver going to go down too.

Dan Jackson 4 months ago Member's comment

Lol maybe, but the Fed is essentially saying “here take some margin, have more than you need!!” Right now.

Wall Street Wiz 4 months ago Member's comment

True, I definitely think that there’s gonna be another downturn and hopefully #gold and #silver will shoot up with all the QE caused inflation