Some of the world’s best hedge funds and Wall Street trading desks use a simple strategy based on the concept of the relative valuation of two assets. In today’s market, the basic materials sector showed potential price gains between two widely followed precious metals. Gold has again outperformed silver by a significant margin, and the last time they made it this far, investors walked away with handsome profits.
Considering the price action of these precious metals in comparison to the price action of other asset classes such as bonds and even cryptocurrencies such as Bitcoin can give investors a better understanding of what’s going on under the hood of the United States stock market. Of course, there are additional considerations to consider before investors jump into this relative valuation deal.
These reasons will become clearer over time, but before investors delve into the details, all they need to know is that potential profits arise from widening spreads between Gold Shares SPDR NYSEARCA:GLD a fund that attempts to track the spot price of gold as accurately as possible. On the other hand, there is iShares Silver Trust NYSEARCA:SLVwhich acts as a hedge for investors to continue their potential play on gold’s next path.
Why gold prices may continue to move this week
There are many factors behind the gold price, but one of the main factors is market psychology and inflation expectations in the coming quarters. After rising to new all-time highs this year, gold has faced new headwinds that have slowed its momentum around the $2,700 price zone, but that in itself is not the answer to this trade.
Bitcoin, which is considered digital gold today, is also linked to market psychology related to inflation expectations. Given that the cryptocurrency has failed to maintain momentum and reach the widely expected $100,000 target, most retail investors are aiming for this time.
SPDR Gold Shares Today
Gold Shares SPDR
(As of 11/27/2024 ET)
- 52 week range
- $183.15
▼
$257.71
- Assets under management
- $74.49 billion
This slowdown could signal that inflation pressures could become a major driver, especially after bond yields began to decline as the week closed, giving investors and traders more reason to believe inflation themes are leaving the equation.
If this trend continues in the coming weeks, there are reasons to start excluding gains from gold, if not betting against the precious metal altogether. However, in this case, investors have silver to use as a hedge if the trend reverses.
Gold vs Silver: Spread Analysis and Predictions on What’s Next
Knowing that there is a chance that gold will potentially stall or fall, the high correlation (up to 88% statistically) between gold and silver means two things investors should consider today. First, silver should catch up significantly with gold, as ETFs have moved more than 10% in favor of gold’s price action over the past month.
iShares Silver Trust today
iShares Silver Trust
(As of 11/27/2024 ET)
- 52 week range
- $20.07
▼
$31.80
- Dividend yield
- 0.00%
- Assets under management
- $14.49 billion
Second, the widening price action reflected in the relationship between gold and silver prices indicates a clear resistance ceiling. If history is anything to go by, buying gold when silver is selling or liquidating can benefit traders brave enough to take this position.
Investors can now rely not only on technical and statistical reasoning, but also on recent institutional buying flows into this silver fund, especially flows into Toronto Dominion Bank, which increased its silver holdings by 18.6% as of November 2024. increasing your net investment. to $64.9 million today.
At the same time, the bank also sold 16.7% of its holdings in the gold stock fund the same week it bought silver. These relative value strategies are common among investment banks and hedge funds, so it makes absolute sense to watch the bank shift between the two precious metals.
Hecla Mining today
Hekla Mining
(As of 11/27/2024 ET)
- 52 week range
- $3.33
▼
$7.68
- Dividend yield
- 0.91%
- Target price
- $7.94
Investors can look to other stock market indicators for evidence of this deal, and that comes from mining stocks. Specifically, Hekla Mining New York Stock Exchange: HL has much greater growth potential than its mining peers, all due to its direct exposure to silver mining.
Analysts at TD Securities reiterated their Buy recommendation on Hecla Mining shares, this time also setting a target price of $8 per share. To prove his new views correct, Hecla Mining shares would need to rise as much as 45.5% from where they are trading today, not to mention a new high for the year.
Is it a coincidence that the same bank that bought the silver fund is also driving up the valuations of silver stocks? It is unlikely that this trade is accumulating more and more bullish evidence that investors today will find it almost impossible to miss.
Before you consider Hecla Mining, here’s what you need to hear.
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