Why Is Silver Outperforming Gold?

Time for Gold to Shine

Below are four reasons why gold could shine in the remainder of 2021:

1. Yield Curve Control: Over the last two weeks, central bank officials have come out in force to try to anchor longer-term yields. Their main tool is pledging to keep interest rates low for at least the next two years. Central bank officials are clearly saying rising inflation expectations do not concern them because they figure price increases are ‘transitory’ or temporary. They figure reopening economies as vaccine implementations happen is just a one-time event. Government yields have declined somewhat in recent days. If government interest rates do rise significantly in the coming weeks central bank officials will continue to ‘jawbone’ them back down and then implement some form of yield curve control.

2. Reopening of the economy: Country-wide vaccine implementation levels are starting to reach critical mass, an example is the UK where more than 50% of adults have received at least one dose of vaccine. The rising number of vaccines equates to economies reopening, which will lead to increased demand for goods – and gold jewelry is one item that individuals prefer to purchase in person. The increase in economic growth in 2021 will also support increased consumer buying in not only Western countries but China and India, which account for around 50% of consumer demand. And China is forecast to have its highest GDP growth rate in 2021 than it has seen for more than a decade in 2021.

3. Central Bank Diversification: As central banks start to exit out of crisis mode, they are likely to start increasing gold purchases again. An example is the Russian central bank, which purchased 158.1 tonnes of gold in 2019. It announced in March 2020 that it would halt gold purchases until further notice due to liquidity constraints. Although, central bank gold buying has been put on hold during the COVID-19 pandemic central banks still desire to diversify out of other countries currencies. This diversification pledge is especially relevant for diversifying out of US dollars and gold continues to serve this purpose for Russia. Rising commodity prices, especially oil prices due to increased demand as economies reopen, will also add revenues to government coffers. More of those coffers will be swapped for the yellow metal.

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