Gold and silver prices diverge as news reaction weakens, investors rotate allocations – StoneX’s O’Connell

The ongoing rally in silver is being driven by market rotation and industrial demand, while gold’s diminishing reactions to global risks are contributing to a divergence between gold and silver prices, according to Rhona O’Connell, StoneX Head of Market Analysis for EMEA & Asia.

In a recent video interview, O’Connell said that while gold has underperformed silver of late, it would be unwise to count the yellow metal out.

“I’d say it’s curling up by the fire for a snooze rather than actually dozing off completely,” she said. “The way the market moved over the course of the latter part of last year, with a lot of people wanting to get in – waiting for $200, $300 drops – in the end, the market was cleverer than they were, and eventually they had to pile in, and the momentum built, and it started to feel crowded. If you add to that, in the slightly longer term, we’d had at least 18 months where the action in the gold market was assimilating all the growing risks in the different areas that have influence. So, it’s had a long time to take everything on board and for the investors to position themselves accordingly.”

O’Connell said that as a result, gold’s reaction to news developments has faded over time. “If you look back over the last two months or so, maybe a little bit longer, the degree with which gold prices have reacted to any extraneous force, be it a long-term one or just something which shoots through the room, that’s been decreasing,” she said. “[This] suggests that the market’s not quite had enough, but if it’s going to go higher it needs some oomph and for the time being there isn’t anything there because all the oomph has been in it. So it’s correcting, but by the same token, there’s still enough uncertainty out there going for however knows long to make sure that when it does come down towards the $3,300 level at the moment, maybe a little bit lower in the future, it is still catching a bid.”

Asked if she believes the worst of the geopolitical risks and market uncertainty is behind us, O’Connell hesitated to agree. “It would be irresponsible of me to give you a bold yes to that, because we never know what’s going to happen,” she said. “Anything can happen given geopolitical risks, and it’s not just bilateral trade tensions, it’s multilateral tensions and personalities and characters and all sorts of different elements that make up that equation.”

In light of President Trump’s renewed attacks on Federal Reserve chair Jerome Powell, O’Connell was asked what would happen if the Fed were to change its policies every four years according to whatever leader is in power at that time.

“It would leave the United States financial system up a creek without a paddle,” she replied. “They’re the world’s largest debtor –  Europe is currently the world’s largest creditor. The state of the U.S. economy is still relatively robust, but from a financial standpoint, the Treasury market still needs inflows.”

She noted that inflows into the long end of the Treasury curve are beginning to slow, and this is significant. “We’ve had all those flows coming from Japan for a long time, and it’s now starting to slow down a little bit,” she said. “Europe’s not that interested, to be perfectly frank. So if you add that additional variable, then that really doesn’t speak well for the outlook for the U.S. economy.”

“The whole point about the independence of central banks is to be able to maintain steady monetary policy and to be very largely predictable.”

Turning to silver, O’Connell said there are three key factors helping to boost the gray metal relative to gold, “a couple of them short-term, one of them longer term, but one of the short-term elements bridges the two.”

“As far as short-term market action is concerned, with gold becoming crowded there’s been some activity on the part of over-the-counter investors and some in the hedge funds and family offices and so forth, who have potentially seen that gold has – not necessarily topped out, although I think it has – they’re not turning away from it completely, but there’s been some rotation into silver and platinum as being undervalued and waiting in the sidelines,” she said. “They’re taking maybe the top slice of their gold holdings and moving it into silver and platinum.”

O’Connell said this has led to some ratio trading. “The gold:silver ratio was above 100 for much of April and it’s now crept down towards 90, and a lot of people are expecting it to go lower,” she said. “But tied in with that, one of the reasons why it had been drifting while gold was moving was because 70% of silver demand is industrial. With the Chinese economy still struggling a little bit, Europe still on eggshells, question marks are rising over the United States.”

“Now you’ve got that little bit of extra interest which has brought it to life and brought it to center stage again,” she said. “At which point we then turn to the future for the market [which is] now in a structural deficit even before you think about any investment activity. That is going to widen over the years as we have the onset of AI, solar cells and vehicle electrification.”

Gold is seeing strong buying interest on Tuesday, with prices breaking decisively above the $3,400 resistance level, and last trading at $3426.07 for a gain of 0.86% on the daily chart.

Silver prices also shot higher earlier this morning, with spot silver topping out at $39.220 just after 9 am EDT before pulling back.

Spot silver is moving higher once again, last trading at $39.086 for a gain of 0.40% on the session.