Gold prices have been on a tear in recent months, soaring to new all-time highs in April. However, silver has not kept pace, lagging significantly behind its more precious counterpart. This divergence has investors scratching their heads and wondering what’s driving gold’s unusual rally.

Typically, gold prices move inversely to interest rate expectations. When bond traders anticipate more rate cuts from the Federal Reserve, gold tends to rally. Conversely, when fewer cuts or even rate hikes are expected, gold usually falls. But over the past couple months, gold has defied this conventional wisdom.

Despite Fed Funds futures pricing out many of the rate cuts previously expected for 2024, gold continues climbing to new peaks. It appears one or more large investors may be positioning for either larger-than-expected rate cuts not currently priced in by the bond market, or increased geopolitical instability, by purchasing out-of-the-money call options on gold with strike prices as high as $3000/oz.

Meanwhile, silver is playing catch-up after the gold rally has largely left it behind so far. As of early April, the gold-to-silver ratio stood around 84, meaning one ounce of gold could buy 84 ounces of silver. By comparison, this ratio fell as low as 30 back in 2011. In other words, silver is less than half as expensive relative to gold as it was at its peak.

This underperformance by silver could suggest the gold rally is overextended, or that silver still has substantial room to run on the upside. However, silver does have more industrial applications than gold, so its price may be held back by sluggish economic growth in China and the threat of a global slowdown as central banks tighten monetary policy.

Ultimately, time will tell if gold’s atypical rally is sustainable or if silver will close the gap. With the global economy at a crossroads and geopolitical risks simmering, precious metals are likely to remain in focus for investors seeking to navigate an uncertain environment. Watching the interplay between gold, silver, interest rates and other macro factors will be key to determining if this is a new paradigm for precious metals or simply a short-term anomaly.