Gold Price and Silver Go on Divergent Paths, Likely to Converge Again Soon

9.15.22 - Brace For a Fed-Induced Recession

Gold last traded at $1,665 an ounce. Silver at $19.23 an ounce.

NEWS SUMMARY: Precious metal prices traded sharply lower Thursday on Fed rate fears and a stronger dollar. U.S. stocks fell as investors mulled over several economic reports that showed a muddy picture of the U.S. economy.

Daily FX--"Spot gold has been weak, and as outlined last week it was expected that the bounce at the time would end sooner rather than later. This has a major area of support in play around the 1680 level that extends back to early 2021.

At the same time, spot silver has been quite strong coming from levels not seen in over two years. This has lead to a material breakdown in the almost always reliable positive correlation between gold and silver.

It's not the first time this has happened nor will it be the last time, but the divergence is highly unlikely to be sustainable for a long period of time. The last time the one moth correlation was negative was in July 2021, and sporadically over time before that. Otherwise, it is often in the very strong 0.80-1 range.

It is currently at 0.35, it's lowest level since last year. The divergence could continue for a little while longer, but the correlation could strengthen at any time without notice. What could change this? Getting back to XAU and the 1680 level, if this were to hold and put a floor in gold then we could see gold and silver move higher together."