Silver Surge Raises Questions for Gold Bulls

• Silver breaks out while gold lags despite escalating Gulf tensions
• Gold-silver ratio collapse hints at aggressive rotation into silver
• India gold demand concerns may be fuelling substitution flows
• Momentum favours further upside while silver holds above 100DMA

Something Doesn’t Add Up in Precious Metals

Silver’s explosive rally at the start of the week alongside a sharp breakdown in the gold-silver ratio was an unusual development given the broader macro backdrop. Escalating tensions in the Gulf and another surge in crude oil prices would normally be expected to favour gold over silver, especially with the latter increasingly behaving like a high beta cyclical asset than a traditional precious metal. Instead, gold lagged badly while silver broke out, raising questions about what drove the divergent price action. 

Modi Comments Spark Questions Around Gold Demand

A potential explanation may lie in comments from Indian Prime Minister Narendra Modi over the weekend urging citizens to avoid gold purchases as part of broader efforts to stabilise India’s balance of payments and protect foreign exchange reserves. While officials later pushed back against speculation around higher import tariffs, the remarks were enough to spark fears that India may once again look to curb demand for gold imports.

That matters given India remains one of the world’s largest gold consumers. If markets started contemplating the risk of weaker Indian gold demand or tighter import restrictions, it may have triggered a scramble towards alternative precious metals exposure instead, potentially helping to fuel silver’s outperformance over gold.

The timing also coincided with optimism surrounding the upcoming Trump-Xi meeting and potential discussions around rare earths and critical mineral supply chains, likely adding further support to metals sentiment broadly.

Traders Aggressively Rotate Towards Silver

Source: TradingView

While the fundamental explanations remain somewhat speculative, the violence of the move suggests technical factors likely also played an important role. The sharp breakdown in the gold-silver ratio reinforced the idea that markets were aggressively rotating towards silver rather than simply buying precious metals broadly.

Silver Bulls Finally Clear 100DMA

Source: TradingView

Silver’s breakout got going before it even occurred, with stubborn offers parked above the 100DMA finally giving way. As seen earlier this year, the 100 capped the price for lengthy periods in March and April before bears were eventually overrun. The question now is whether this latest breakout attempt can enjoy greater success.

The April swing high immediately becomes the key reference point below alongside the 100DMA, while overhead, the March swing high at $90 is the first resistance level to watch. A break above there would place silver on a potential collision course with major resistance at $96.

The message from the oscillators is bullish with RSI (14) trending higher without yet reaching overbought territory, while MACD has crossed the signal line and turned positive again, confirming upside momentum is rebuilding. That favours long setups over shorts for now.

From a macro perspective, silver has also maintained a prolonged positive relationship with riskier asset classes while its negative correlation with the USD has strengthened noticeably over the past week, lifting to -0.81. That suggests a combination of a softer dollar and continued gains in riskier asset classes may provide the optimal environment for further upside.

Gold Bulls Need Break Above 50DMA

Source: TradingView

The question for gold is whether the move in silver is a lead indicator for what may come next or instead the reason behind silver’s breakout. Certainly, the structure is similar with the price sitting just beneath the confluence of the 50 and 100DMAs after rebounding from $4500 support in early May.

Unlike silver, gold’s interaction with the 100DMA has been less consistent than the 50DMA which it has often respected, making the latter the immediate level overhead to watch following Monday’s hammer candle after the strong rebound from $4650 support. If the price can slice through the 50DMA in the same manner silver did with the 100DMA, resistance above $4850 may well come under threat.

While silver is demonstrating building upside momentum, the oscillators make for a less compelling case for longs in gold. RSI (14) sits only marginally above 50 and is showing signs of flattening out, while MACD remains negative despite crossing the signal line from below last week. It’s not a bearish signal, but neither is it an outright bullish one, placing greater emphasis on price action in the sessions ahead.

Looking ahead, like silver, gold is behaving far more like a risk asset nowadays and has seen an increasingly negative correlation with the DXY of -0.8 over the past week. While there is some big US economic data out later today in the form of April CPI, as explained in earlier analysis, whether it materially shifts the Fed outlook and with it the USD remains debatable.

Put bluntly, there’s no accompanying restrengthening in US labour market conditions to fuel concerns about a pivot from cost-push to demand-pull-led inflation, keeping wage price spiral fears muted that would materially impact the rates and dollar outlook.