Top Story

Silver shines as yields, dollar dip

Precious metals have found strong support over the past couple of days, with gold surging back to $1340 and silver to $20.00 per troy ounce. The US dollar has weakened while benchmark government bond yields have fallen across the board once again. This is mainly due to a slightly more dovish Federal Reserve and as the Bank of Japan announced new set of policy measures aimed at extending its quantitative easing programme in order to overcook inflation. The lower government bond yields have boosted the appetite for racier assets like equities, while at the same time they have made precious metals – which, unlike bonds and stocks, pay no interest or dividend – appear more appealing to investors on a relative basis.

Because of the fact that the central banks’ decisions have triggered a “risk-on” response in the markets, silver has actually outperformed gold, as the latter is deemed more of a safe haven commodity than the former. Unlike gold, silver has many industrial uses, so it tends outshine the yellow metal at times when risk assets are rallying. As a result, the gold/silver ratio has fallen below 67, its lowest level since early August. With the chart of the gold/silver ratio making lower lows and lower highs, I am expecting silver to continue outperforming gold.

Silver itself has had difficulty breaking through the $20 handle in the past. But the long-term trend has turned more favourable for bullish speculators this year after the precious metal broke through a major downward-sloping trend line in February before staging a sharp rally as the dollar’s rally came to a halt. Silver has subsequently been making higher highs and higher lows. It looks like the metal has now made another higher low at around $18.25-$18.50, which was previously a significant support and resistance area. For as long as silver holds above this area, the path of least resistance is likely to be to the upside. But silver does need to break through the $20 area soon if it is to extend its gains meaningfully now. Should it be able to do so, which is our base case scenario, then at least a revisit of this year’s high at $21.10/15 area would then become very likely.  

Source: eSignal and FOREX.com.

Source: eSignal and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.