Which is the more volatile of the two commodities - and could this be the perfect entry for gold gains?

 

In this blogpost we have decided to feed you a more data-analytic approach to the two commodities gold and silver. To do this, we have collected price time series data from both Yahoo Finance and S&P in the form of daily observations. This week’s focus lays on price risk, returns, and comparable price development. S&P GSCI represents the benchmark.

From the graphs above, we can see that Gold is the only one of the two commodities that has had a positive price development over the past two weeks. Silver on the other hand showed negative development, barely beating the benchmark index. In a year-to-date perspective on the other hand, both commodities have been underperforming relative to the benchmark.

The table above illustrates the annualized standard deviations and returns for each commodity and the benchmark, as well as the respective commodities estimated beta to the index for the two periods. For the past two weeks we observe a big difference in performance with gold being the only one to show positive returns. A return exceeding 17% combined with about 7% volatility would result in a Sharpe ratio of around 2,5 for the valuable metal. Silver and S&P GSCI on the other hand indicate very poor returns with S&P being the more volatile of the pair. 

Looking at YTD data, the situation changes very much. In the slightly longer period, it becomes clear that both gold and silver are beaten by the benchmark, and silver being the more volatile of the assets. As a comparison, the iShares MSCI world ETF (meant to reflect the returns of MSCI world) has generated 14% return and 11,82% volatility YTD. The beta values in both time periods is between 0 and 1 for both metals. This means that their price changes are less volatile than that of the benchmark index.

As for future prospects, some analysts claim that right now is a great opportunity to buy gold based on technical analysis and comparison to the bull run that happened after the 9/11 incident in 2001.After 9/11 we saw a quick rise in gold prices before prices fell back to pre-9/11 levels just a couple of months later – after that, prices rose substantially for the coming period. Comparing the 2020 crises to the 9/11 crisis, we are at the bottom point right now, back to prices as they were just before covid hit. Maybe right now is the start of a great bull run?