Gold or silver? Smart trading for precious metals investors

Some of the world’s best hedge funds and trading desks on Wall Street employ a simple strategy, centered on the concept of relative valuations between two assets. In today’s market, the Basic materials sector has shown potential price escalation between two widely followed precious metals. Gold has once again outperformed silver by a wide margin, and the last time the two were far apart, investors walked away with a handsome profit.

Considering the price action in these precious metals compared to the price action in other asset classes such as bonds and even cryptocurrencies like Bitcoin, gives investors a better understanding of what is happening under the hood of the United States stock market. can Of course, investors need to consider other rationales before taking this relative valuation trade.

These reasons will become clear in a short while, but before investors dig into the details, they just need to know that the profit comes from the wide spread between potential developments. SPDR Gold Shares NYSEARCA: GLD The fund, which tries to track the spot price of gold as closely as possible. On the other hand, there is iShares Silver Trust NYSEARCA: SLVThat acts as a hedge for investors to keep ahead of their potential play in gold’s next path.

Why gold prices may rise for further movement this week

There are many drivers behind the price of gold, but one of the main factors is market psychology and expectations for inflation in the coming quarters. After climbing to new all-time highs this year, gold faced a fresh headwind that slowed its movement around the $2,700 price area, but that alone is not the answer to this trade. .

Bitcoin, considered today’s digital gold, is also linked to market psychology around inflation expectations. Considering that the cryptocurrency failed to maintain its momentum and broadly reach the $100,000 target, most retail investors are gunning for the moment.

This slowdown could signal that inflationary pressures are emerging as a key driver, especially as bond yields begin to rebound to close the week, leaving investors and traders out of the equation. Showing more evidence for topics to consider.

If this trend continues in the coming weeks, there are reasons to start taking gold profits off the table, if not outright betting against the precious metal. In this case, however, investors have silver to look to as a hedge in case of a trend reversal.

Gold vs. Silver: Spread analysis and predictions for what comes next

Knowing that the setup exists for gold to potentially pause or decline, the high correlation between gold and silver (up to 88% according to statistics) is two things for investors to consider today. The first is that silver needs to significantly catch up with gold, as ETFs have become increasingly volatile. 10% in last month To support the gold price action.

The second is that an increase in price action, reflected in the correlation between gold and silver prices, indicates a clear range of resistance. If history is any guide, buying gold while shorting or liquidating silver may favor traders bold enough to take this position.

More than technical and statistical arguments, investors can now lean on the recent flow of institutional buying into this silver fund, particularly at Toronto Dominion Bank, which increased its holdings to 18.6% for silver through November 2024. , brought their net investments. Today up to $64.9 million.

at the same time, The bank also sold 16.7%. It bought silver during the same week as its holdings in gold share funds. These relative pricing strategies are common to investment banks and hedge funds, so it makes perfect sense to watch the bank shift between the two precious metals.

Investors can look to other metrics in the stock market for confirmation in this trade, and it comes from the mining stock industry. in particular, Hekla Mining NYSE: HL Commands a much higher upside potential than peers in the mining industry, all because of its direct exposure to silver mining.

Analysts at TD Securities have reiterated their buy rating on Hekla Mining stock, this time at A. Price target of $8 per share. To justify its new ideas, Hekla Mining would need to grow 45.5% from where it trades today, not to mention a new high for the year.

Is it a coincidence that the same bank that bought the silver fund also drives up silver mining stock values? Inevitably, this trade is gathering more and more encouraging evidence that investors today will be almost unable to miss.

Before you consider Hekla mining, you may want to hear this.

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