What’s keeping silver down while gold hold above $2,400?
Gold has been able to maintain a solid uptrend, building a new base with each rally; however, this momentum has not filtered through the entire sector as silver struggles to find its footing.
While gold is fighting for support at higher lows around $2,400 an ounce, silver is struggling around $29 an ounce. Silver's underperformance compared to the yellow metal has pushed the gold/silver ratio to its highest level in two months, back above 82 points.
The gold/silver ratio has jumped 14% from its multi-year lows seen in May. September silver futures last traded at $29.185 an ounce, down 0.45% on the day; meanwhile, August gold futures last traded at $2,405 an ounce, up 0.43% on the day.
Some analysts have said that gold is benefiting as a safe-haven asset because of rising geopolitical uncertainty, fueled by the U.S. elections in November.
“Silver usually follows the price movements of gold disproportionately. However, this has recently only applied to the downside. The previous upward movement in gold following the US inflation figures was more or less ignored by silver,” said Carsten Fritsch, Commodity Analyst at Commerzbank. “The relative weakness in silver is likely due to the weakness in base metals. This is because industrial applications are expected to account for almost 60% of silver demand this year.”
Commerzbank noted that base metals are struggling due to weakening demand in China; however, the analysts said that the selloff in base metals is overdone.
“On the one hand, the rate cuts by the central banks that have already been made, and those still to come in the coming months, should lead to an economic upturn, which should brighten the currently very negative market sentiment,” the analysts said. “On the other hand, the lower price level should put pressure on metal producers to curb production.”
Although silver continues to struggle, many investors are still not ready to give up on the precious metal.
In a recent interview with Kitco News, Robert Minter, Director Of Investment Strategy at abrdn, said that he expects silver to eventually outperform gold as the Federal Reserve starts to cut interest rates.
“Looking at the last three rate cycles, in 2000 gold went up 57%, but silver went up 65%; in 2006, gold went up 235%, but silver went up 318%; and in late 2018, gold went up 69%, but silver went up 101%,” he said. “Silver is the higher beta play.”
In a comment to Kitco News, Julia Cordova, Founder of Cordovatrading.com, said that while silver is struggling, she remains optimistic that it can regain its luster.
“Silver followed through on the confirmed weekly bearish divergence from last week, and the weekly close was outside of the possible pennant structure to the downside, but I think it is likely to outperform the yellow metal this week if it can regain $29.855. $28.41 is strong support," she said.
While silver has managed to push back above $29 an ounce, James Hyerczyk, Senior Technical Analyst at FXempire, said that the key support level to watch is around $28.50 an ounce.
“The short-term outlook for silver appears bearish. The metal’s dual nature as both a precious and industrial metal is currently working against it,” he said. “Traders should watch for a potential break below the $28.57 support level, which could trigger further downside. However, upcoming economic data, shifts in Fed policy expectations, or changes in industrial demand could provide volatility and potential turning points in the silver market.”
Kitco Media
Neils Christensen
Tim Moseley