The Hidden Message In The Metals Markets

Because silver and gold are both precious metals, their prices naturally tend to move together in commodity markets. But sometimes the differences in their movements are an important clue to the developing economic outlook.

That, in fact, seems to be the case in recent weeks: Silver prices have shot up as much as 14%, while gold has edged higher by only 2%. The reason for the difference, says precious-metals trader Denise Giordano of Swiss Bank Corp., is that "silver is as much an industrial metal as it is a precious metal, and silver investors seem to be betting that economic recovery lies ahead." Gold, on the other hand, mainly responds to changes in inflationary expectations.

The market's message, according to Giordano: "So far, the subdued outlook for inflation has not changed much despite the view that an incipient economic recovery is coming."

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