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.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website 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.