Gold in Q2: Snowball Rolling Downhill, Getting Bigger With Every Spin Jeff Clark, Senior Analyst, GoldSilver.com
JUL 3, 2020
It’s time for our quarterly update, where we look at the performance of gold and other major asset classes, along with year-to-date performance. We also look at the Fed’s impact on gold, the gold/silver ratio, and the prognosis for the second half of the year. See what message you glean from last quarter’s action…
Q2: Gold Runs, Silver Jumps
Gold’s selloff in March led to a strong rebound through mid-April, the price jumping $268 in just three weeks. It then traded mostly range-bound until the last week of the quarter, when it spiked again to end Q2 at $1,783.58, up 12.6%.
Here’s how gold and silver performed in the second quarter, vs. other major asset classes.
q2 performance of major asset classes
It was a banner quarter for gold: the price ended at its highest quarterly closing price in history, as well as its second highest monthly close ever.
Silver was the standout, jumping 28.1% in three short months.
Other asset classes rebounded sharply in the second quarter, too. The jump in crude oil was its biggest quarterly gain since 1990, and the S&P 500 logged its largest quarterly advance since 1998.
While gold didn’t “bounce” since it had risen in Q1, it did record its strongest quarterly performance since Q1-2016.
Even more impressive is this…
Year-to-Date Performance
Looking at the first half of 2020, gold leads all major asset classes.
2020 performance of major asset classes
Gold is up 17.1% through the first half of 2020. Many assets, despite the bounce in Q2, remain underwater, the Nasdaq and 10-year Treasury the only major exceptions.
I’ll also point out that the average gold price in the first half of 2020 was $1,644, what is a whisker away from its highest annual average on record, $1,669 in 2012.
Federal Reserve = Gold Catalyst
You’ve probably heard stock investors say, “Don’t fight the Fed.” Well, it has applied to the gold sector, too…
The Fed’s “unlimited liquidity” pledge is not only still in play but grew last quarter to include the purchase of individual corporate bonds—even junk bonds! It also recently established the “Main Street Lending Facility” to support small businesses, all of which shows there is little hesitation by Fed official to jump in wherever and whenever they think it’s necessary.
The minutes from the Fed’s June 9-10 meeting how that it expects to continue with “highly accommodative monetary policy for some time.” All those fancy methods of quantitative easing have driven an increasing number of investors into gold.
Meanwhile, the Fed funds rate remains near zero. Most Treasury rates can’t match even the low inflation reading. In fact, the “real” rate on the 10-year Treasury yield (after inflation) has steadily fallen for 18 months, and at the end of Q2 was solidly below zero.
While yields continued to weaken, the gold price has now risen three consecutive months and six consecutive quarters. Gold is the ideal fixed-income alternative in a low or zero rate world.
Silver Still Dirt Cheap
Historic highs in the gold/silver ratio (GSR) continue. As I pointed out last quarter, it spiked to 123.5 on March 17, a huge jump from its prior record high of 100.8 in 1991.
Despite silver logging a 28.1% gain last quarter, the GSR (gold price divided by the silver price) remains at nosebleed levels.
gold / silver ration remains at extreme level
The ratio ended the quarter at 99.08, a reading that is clearly overstretched. For those investors that feel the gold price got away from them, silver still offers deep value. We think the “catch-up” could be breathtaking.
Gold Prognosis: High and Widespread Risks
With all the records gold set last quarter, is the price getting a little frothy? The answer to that question lies in the answer to this one: are the risks that drew investors into gold all gone? See what conclusion you draw as you review the following list…
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Poster Comment:
Charts at source.