Both precious metals remain in demand for now. This is mainly due to historically low interest rates and as the vast central bank QE and government stimulus money is finding its way into these assets, as well as stocks. Economic concerns due to the impact of Covid-19 and fears over a potential stock market correction are additional reasons people have been buying safe-haven gold and silver.
But the metals’ gains also reflect investor optimism over an economic recovery, which is especially the case for metals and other commodities used in industrial processes. Indeed, silver is seen as both a precious metal as well as an industrial material. So, like copper, it has found additional support from optimism that demand will recover strongly in China. The optimism, whether justified or not, is reflected clearly in Chinese equities, with the benchmark indices surging higher over the past several days, massively outperforming the rest of the world.
Reflecting silver’s improving performance relative to gold, the gold-silver ratio has been falling again of late:
With the ratio breaking lots of support levels and looking quite weak, this suggests silver is the one to watch as gold is now no longer inexpensive. The grey metal costs $19 while the yellow metal is worth $1800 per ounce. There remains a significant gap to narrow, which could happen if gold falls at a faster pace than silver or rises at a slower pace than the latter. I think it will be the latter case, for the grey metal looks quite constructive from a technical point of view:
Silver’s move above $19 means it has now reached its short-term objective. So, what I want to see next is whether it will ease back on profit-taking or hold the breakout decisively.
If the metal eases back, then it will be worth watching supports such as $18.75 or the base of this week’s breakout around $18.36-45 closely because these are now levels where the dip buyers could step in, causing renewed bullish momentum
If the breakout holds and we close well above the $19 handle, then future dips back to this psychologically-important level could be supported, potentially paving the way for $20 or higher over time.
However, if the above support levels fail to hold then the bulls will be in a spot of bother. And if we then go back below the most recent low that was created prior to the breakout, circa $17.75, then at that point the bulls will get into trouble. So, at this stage, the line in the sand for me is at around $17.75 as any move below it would invalidate the bullish bias.
