Precious metals have been one of the strongest parts of the market since the March lows.

Gold's Path

Gold (GLD  ) bottomed around $1,450 per ounce during the initial liquidation period in March. It started rising as it became clear the government was going to pour trillions of liquidity into the markets and trillions of stimulus into the economy. As a result, real interest rates started falling, and gold started to rally. Additionally, gold tends to do well in periods of economic and political instability.

After its initial rise above its previous highs, gold started to consolidate in a sideways pattern between mid-April and mid-June. In retrospect, this was healthy in terms of resetting bullish sentiment and transferring shares from short-term, price-action focused traders to longer-term, fundamental investors. Prices broke higher from this consolidation in late-June and then have exploded higher to cross all-time highs and hit $2,000 per ounce.

There were a number of supportive catalysts as well. Case counts for the virus started to increase. The euro made a big move higher as European countries agreed on some sort of a fiscal union which is a precursor to increased deficit spending. This puts negative pressure on the U.S. dollar. The Federal Reserve reiterated its dovish stance and hinted at further action if the economy continues to underperform.

Given gold's sharp rise higher, and the explosion in bullish sentiment. Some pause seems likely. However, the underlying fundamentals seem solid. Until the economy stabilizes, gold prices will have a strong tailwind as the central bank and the federal government will be implementing stimulus.

Silver's Path

Silver (SLV  ) had been a persistent underperformer to gold. This continues even now on a longer timeframe. While gold is making new, all-time highs. Silver is nearly 50% off its previous, May 2011 highs.

However, in recent weeks, the less-shiny metal has been outperforming by a significant margin. The first hint of this was seen in May and June when silver was trending higher, while gold was flat. From mid-April to mid-June, gold was locked in a tight range between $1,700 and $1,750 per ounce. During this time, silver climbed from $14.50 to $18 per ounce.

In hindsight, it's clear that this was a sign of expanding risk appetites and increasing liquidity entering the precious metals sector. During gold's second leg higher from late-June to now, silver peaked at $26 for a 44% gain. Gold was higher by 15%.

Interestingly, gold continues to trend higher hitting a high of $2,005 on Friday before closing at $1,985. However, silver hit its high of $26 earlier in the week before closing at $24.4. Just like silver outperforming gold was a bullish signal to increase risk, we should pay attention to silver underperforming gold.