For those dedicated to watching the market daily, it comes as no surprise that gold has been outperforming over the last two weeks, advancing over 7% in the last 8 trading sessions and currently trading at all-time highs above the $2,300 level. The market views gold as a store of value and a vehicle that can be used to "hedge" against inflation, as well as a key component for reserves for central banks around the world. After the hot CPI and PPI prints last month, coupled with the surprising increase in the ISM Manufacturing Prices component, along with the price advances for energy and industrial metals like copper, the market has started to position for the possibility of some turbulence to come in the battle against inflation.

On the other hand, silver has both precious metal properties like gold in some respects, as consumers who may not be able to afford gold will buy silver as a substitute, but silver also has a substantial number of industrial properties as well, giving it a nice opportunity for demand factors. As I discussed late last year around the copper and energy markets, the impact that the China reopening narrative can have on demand has been broadly discounted in the market. If industrial production continues to increase in China and other parts of the world, including the United States—albeit at a slower pace than market expectations—as evidenced by our first expansionary ISM Manufacturing data print since October of 2022, demand for industrial metals like silver should increase.

Below is a 5-day price ratio chart of iShares Silver Trust (NYSE:SLV) to SPDR Gold Shares (NYSE:GLD), two ETFs that invest in their respective commodity futures basket and not companies within the space, which is very key to note. Notice this week how silver has already outperformed gold (the orange line moving higher); this may only be the beginning of this trend.

Market positioning is always a big factor when looking into the commodity space. Reviewing the Commitment of Traders Report, net speculative positioning has increased over the last 3 weeks but may be approaching a near-term peak at around 200,000 contracts, which was actually a reduction of approximately 4,200 from the previous week. On a historical basis with the aggressive price action in gold, there may be more positive action to come. One thing to note is that the total open interest across all contracts for gold appears to indicate that short positions have been squeezed, given that open interest has declined on a relative basis since March 11th, while prices have continued to advance higher. It's important to mention that when prices increase and open interest decreases, it typically indicates short covering. Conversely, if prices advance higher and open interest also increases, this traditionally suggests that new long positions are being established. However, a different story emerges for silver.