5/10/23 Gold to outperform silver this year as recession risks build, says Bloomberg Intelligence

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  5/10/23 Gold to outperform silver this year as recession risks build, says Bloomberg Intelligence (1)

Gold to outperform silver this year as recession risks build, says Bloomberg Intelligence

  • Anna Golubova

Anna Golubova  

Wednesday May 10, 2023 11:38


Gold is looking to outperform other commodities, including silver, platinum and palladium this year as U.S. recession risks rise, said Bloomberg Intelligence in its May outlook.

The yellow metal will accelerate its rally in the second half of this year, taking the gold-silver ratio higher. Currently, the gold-silver ratio is around 80, which means it takes 80 ounces of silver to buy one ounce of gold. At its peak in March 2020, the gold-silver ratio was around 124. The higher the ratio, the more expensive gold is compared to silver.

"The price of gold has had a propensity to outpace silver since Isaac Newton adopted the gold standard in 1717 as master of Great Britain's Royal Mint, and may accelerate in 2H. At about 80 ounces of silver per gold, the cross rate is roughly the same as the financial crisis high and well below the 124-ounce peak from March 2020," said Bloomberg Intelligence senior macro strategist Mike McGlone.

As the U.S. enters into a recession, that ratio is heading to its all-time highs, with the 80-range acting as the floor, McGlone noted.

"As the U.S. leans into a recession, the ratio is more likely to head toward the all-time high and may be forming a foundation around 80. If consensus for a soft landing turns out to be more of a bust worthy of the liquidity-fueled boom to the 2022 stock market peak, gold appears more inclined to extend to new highs vs. silver," he wrote.

Silver will have its opportunity to catch up at the end of a recession once electrification trends kick in, McGlone added.

Gold versus platinum also looks encouraging, with gold known to outperform platinum during recessions.

"Averaging about 2x since 1Q20, the gold/platinum cross appears to have stabilized for a soft landing, which may tilt risk vs. reward optionality toward the upward trajectory," McGlone said. "If the economic contraction turns out to be worthy of the most coordinated global central-bank hiking period in history, gold is well-poised to resume its upward path vs. platinum."

Gold has even more significant upside potential versus palladium. "It was during the financial crisis that the gold-palladium cross rate reached the highest in our database since 1993 at around 5x vs. 1.4x now," McGlone said.

And Bloomberg Intelligence sees a similar environment developing for both metals as in 2008-09. "Palladium's relative high price vs. platinum may leave the former as a top reversion contender in the case of economic stress," McGlone added. "At about 1.4 ounces of platinum to palladium, the ratio has dropped from just above 3 in 2020, but vs. the average of around 0.80 since 1993 there's plenty of downside risk in palladium -- notably vs. other precious metals."

Gold's performance so far is encouraging, up around 9% during the last 12 months. In comparison, the Bloomberg Commodity Spot Index (BCOM) is down around 24% during the same period. And with the Fed now facing the consequences of its most aggressive tightening in decades, gold's outlook remains bullish, according to the report.

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