Commodities & Metals

History's View of a Gold Bubble Versus a Silver Bubble Forming in 2020

Bubbles can scream higher with bulls charging and bears roaring, but a recent forecast references a simultaneous buy and sell signal. In July of this year, Carter Braxton Worth tweeted something about silver’s rise after jumping from $20 to $24 in a few days. Can something be a buy and a sell at the same time? Of course. It’s all about who one is in the marketplace and one’s time frame. Silver is both, here and now.

Other strategists have been bullish on gold and silver as well. BofA Securities has talked about $3,000 gold over the next 18-month period for months now, and it just outlined how silver could reach $50 per ounce in fresh reports. A recent call from RBC Capital Markets also talked gold’s target up to $3,000, even if it warned of volatility around profit-taking being followed by new unexpected headlines driving the price back up. TD Securities has pointed out that positioning in gold is not overly stretched, but at the higher end of the range the trading action points to excessive retail speculation and momentum as likely contributors to the higher gold prices.

Sarah Kiernan, head of Americas Commodities Sales for the Goldman Sachs Global Markets Division, recently talked up gold and silver, but she noted how there are strong metrics for silver ahead. Her view is that the interest in silver is positioned somewhere between the precious metal investor interest and the real commodity. In a recent episode of The Daily Check-In with Goldman Sachs, she noted that half of silver demand is industrial, and the economic reopening with more large-scale projects has given a real bid to silver. Kiernan also noted that any switch from gold to silver can be magnified due to the gold market being eight times that of the silver market. Her ending take: “There is a lot of fundamental reasons to be bullish on silver from a true supply/demand perspective.”

One other aspect of investing in silver and gold is that the two largest gold miners have a combined $105 billion in market capitalization, but the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) now has roughly $19 billion in assets as of August 4. Many speculative miners within the VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ), with about $6.9 billion in current assets, have more than doubled year to date. A fresh look at all of the gold and silver mining companies showed that it is just a lot harder to find significant upside.

The year-to-date rise of 32% in gold has now been eclipsed by a 45% rise in silver. Compared with March, silver has effectively doubled from the trough to the current price.

Investors and speculators know that bubbles form over time. How much those bubbles inflate depends on too many things to discuss in one article. There is still a debate about whether the bubble in precious metals has even formed or is just getting started.

Silver is sometimes referred to as the “poor man’s gold,” but its trading history would indicate that the other nickname of the “devil’s metal” is for more reasons than just a biblical reference. It would be easy to say that silver’s move has a long way to go if gold stays strong, but that is something for each person to decide on their own.

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