In early July, gold and silver broke out on new multi-year highs. The yellow precious metal is in close proximity to new record highs and the headline worth $ 2,000 an ounce price. The gray precious metal, however, still has a lot to catch up with. And while it does, the percentage price increases could be explosive. Silver has already risen 60% since its panic sell-off in March.
Historically large discount on gold
More importantly, the fact that it has shown leadership potential by narrowing its historically large discount on gold. The precious metal mining companies also show leadership. The notoriously volatile mining sector attracts speculators and smart money insiders. It often serves as a leading indicator for the metals. Since bottoming out in March, the HUI gold mining stock index has risen more than 90% in the worst times of summer. If gold mining companies develop below average or deviate negatively from the gold price, this would be a warning signal for the gold market.
Bull market risks driven by the Fed
Of course, there are always risks – both known and unknown – for any bull market development. Virus and political risks before the election season could boost renewed market volatility. Will the US stock market be vulnerable to another epic downturn by fall? Possibly. The Federal Reserve and the rest of the Plunge Protection Team will certainly do their best to keep asset markets up. In a way, they will almost certainly succeed. There is a strong correlation between the growth rates of the Fed’s balance sheet and the directional movements of the S&P 500.