Could silver finally break out

US President Donald Trump has arrived in Japan on the eve of the G20 summit, where he will hold talks with Chinese leader Xi Jinping. The outcome of the meetings will likely be a binary one. If trade talks falter, Trump has said he has a plan B for China: more tariffs on Chinese goods. If they make progress, then a delay in raising tariffs or cancelling some of the previously announced-levies are likely, and talks could resume between the two nations in July. Another topic that will likely take centre stage will be that of Iran’s situation, so oil prices could be impacted as well as equity and FX markets. Ahead of the meetings, sentiment is cautious and investors are taking no chances. But there is one major market that may be able to ignore what happens at the G20, or not react too negatively in the event of talks collapsing: silver.

Silver may be able to ignore G20 developments

It is inevitable that most markets will be impacted by the outcome of the talks at G20, making it even more difficult to predict the direction of prices. But one market that is least likely to be impacted will probably be silver as it is considered both a precious metal (and therefore a safe haven asset), and an industrial material (simultaneously making it a risk asset). But with the dollar falling recently and yields ticking lower, the grey metal has been making steady but slow progress, unlike gold and Bitcoin. But is it about to do what gold and Bitcoin have recently, and stage a sharp rally?

Gold/silver ratio climbs towards records

At around $92, the gold/silver ratio has climbed to levels not seen since the early 90s. This means that the probability of a collapse in the ratio is on the rise. If the ratio drops, this could obviously happen in two ways: both metals falling with gold dipping at a faster clip, or both rising with silver at a faster pace. Either way, silver could outperform gold. Given that the ratio has been as low as $32 in 2011 and around $15 in late 70s, there is significant room for upside potential in silver (or downside for gold, obviously).

Silver tests key support

As the theme of the above fundamental considerations is long-term, we might as well keep the technical focus on a higher time frame. So, looking at the weekly chart of the metal, things are starting to look quite interesting for bulls although unlike gold, silver is still holding below its long term resistances, which explains why the gold/silver ratio has been climbing towards record levels. Crucially, however, we have seen the development of some bullish price action over the last several months above the long-term support in the $14.00 region. This could be the start of something big, although we are yet to see the break of the medium-term bearish trend line. But with price making a couple of shorter-term higher highs and higher lows, a breakout could be on the cards over the coming weeks. It is therefore imperative that the bulls will be able to hold their own and defend the old resistance at around the $15.10/15 region, which was being tested at the time of writing.

Source: eSignal and FOREX.com

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.