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Money Metals News Alert
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June 9, 2025 –
Silver prices surged last week, picking up $3/oz. The 9% move higher outshone
gold???s $21/oz (0.6%) gain.
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Silver has been
underperforming gold for months with many wondering when the metal might start
catching up. When silver punched through key resistance at $35/oz, chart-watching
speculators were ready to jump on board.
Stock prices also rose.
The S&P 500 gained 2% for the week. The Federal Reserve note ???dollar??? traded
mostly flat in foreign exchange markets. Bond yields rose, with the 10-year ending
back above 4.5% yield.
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Higher prices drove some additional
selling in the U.S. retail bullion markets and buying activity was muted. Bid and
ask premiums remain under pressure, with dealer inventories being plentiful.
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Gold : Silver Ratio (as of
Friday's closing prices) – 90.5 to
1
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The U.S. Dollar and Delusions of Growth
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Americans are accustomed to assets
being priced in terms of Federal Reserve note dollars. It makes sense, of course.
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The dollar is the currency
of the realm. There is, however, a real problem with using it as a benchmark.
Government inflation
statistics cannot be trusted. It isn???t easy to determine whether price gains
represent appreciation of the asset or depreciation of the dollar.
Gold is an infinitely
better store of value. That makes it a more useful standard against which other
assets can be measured.
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It???s an eye-opener to measure how key
assets have performed with gold, rather than the dollar, as the benchmark.
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Gold vs 10-Year
Treasuries
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The 10-year U.S. Treasury note has
long been promoted as a ???risk free??? asset. This maxim is among the most dangerous
and misleading ever uttered by Wall Street bankers and brokers. The secret to
claiming 10-year Treasuries as ???risk free??? is that they are priced in dollars.
No matter how badly Treasuries
perform, they hold up just slightly better than the dollar due to the pitiful
yield.
Priced against gold, Treasuries have
been a disaster. Buying 1 oz of gold in June 2015 cost around $1180. That ounce of
gold is now worth just over $3300. The same $1180 investment in the 10-year bond
would be worth $1500 today – less than half the value of the gold. That???s
including reinvestment of interest.
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Oil remains the most vital commodity
for powering the global economy. It has not performed well as an investment over
the past decade. There have been modest gains relative to the dollar, but huge
losses relative to gold.
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West Texas Intermediate
(WTI) crude was priced at $59.82 per barrel in June 2015. With gold at $1,180 the
gold/oil ratio was 19.72. Today the oil price is around $64.50 and the ratio is
roughly 51. It now takes 51 barrels of oil to buy an ounce of gold.
The collapse of oil
relative to gold is a complicated subject which involves increasing global
production and other factors.
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However, global GDP has reportedly
grown at an average annual rate of 2.67% while oil production has risen just over
1% per year.
Based on the official data, demand
should be outstripping supply and oil prices ought to be rising. The gold/oil
ratio suggests something is wrong with that data.
It???s a good bet that real economic
growth is nowhere near as healthy as governments have been reporting.
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Gold vs the S&P 500
Index
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Stock prices fared much better than
oil or Treasuries over the past 10 years. The S&P 500 Index was priced at roughly
2100 in June 2015. The gold/S&P ratio was 0.56. Today the Index is at 6000 and the
ratio is nearly unchanged at 0.55.
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Not bad, except that in a
healthy economy, stocks should significantly outperform gold. Instead, measured
against gold, there is essentially no appreciation.
And if the window is
extended to the past 25 years, the gold/S&P ratio climbed from 0.2 to 0.55. Gold
dramatically outperformed stocks, even when reinvesting dividends.
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Gold Tells the Real
Story
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There are lots of investors out there
operating under the delusion that their investments are performing well. That
delusion is only possible if assets are priced in dollars. If they measure
performance against gold, the story could not be more different.
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This week's Market Update was
authored by Money Metals Director Clint Siegner.
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