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Silver price is moving higher, could it drag gold with it?

Published by Karl Martin Karus in category Precious metals on 25.05.2021
Gold price (XAU-SEK)
18 312,20 SEK/oz
  
+ 40,30 SEK
Silver price (XAG-SEK)
216,08 SEK/oz
  
+ 0,69 SEK

The gold market has been on an upward trend since June 2019. The first major coronavirus wave, which spread widely in March 2020, led to a powerful momentum for the price of gold. The pandemic led to uncertainty in financial markets, causing many institutional investors and retail investors to invest in safer asset classes such as precious metals, mostly gold and silver, but also platinum.

In the first week of August 2020, the price of gold reached an all-time high of USD 2,077 / ounce. Since then, gold has been in correction, and the price per ounce has been dropping.

From the end of March 2021, gold has started to rise again, trading at 1843 USD / ounce at the time of writing this article (15.05.2021). In order to talk about the new historical highs for gold, the latter must break through the strong resistance range, which is between 1952-1973 USD / ounce.

At the same time, the price of silver has shown strength and followed all areas of support and trends from a technical analysis perspective. One reason behind the silver strength certainly lies behind the Green Energy Narrative, which became a hot topic in 2021, especially after Joe Biden was elected as United States president. One of his first jobs in office was introducing a green infrastructure package. You can read more about it here.

The silver price is moving higher. Could it drag gold with it?

The silver market saw the week’s biggest price increase since the beginning of February. The price of silver rose to a two-month high of $27 per ounce.

Monday’s silver breakthrough is a critical technical breakthrough and the price of silver trades just above $27 which is on the line of a strong support area. (1)

Comments from Saxo Bank Analyst, Ole Hansen: The silver market differs from the gold market, and the latest gold inability to break through important resistance zones is frustrating and confusing many traders. He also noted that he is neutral on gold but still sees that gold price eventually break upwards from its current consolidation pattern. (1)

The key factors to watch out for are: (1)

  • Historically low real bond yields
  • Higher breakeven rates in the bond markets.

He also added that silver’s new momentum could help to push gold prices higher.

Other indicators such as Moving Averages also suggest higher silver prices. On May 3rd, the 21MA crossed over 50MA, which indicates a bullish signal. After the crossover, the silver price rose and broke out from the previous resistance zone, and now trading above it. The resistance zone has become a support zone.

From Picture 1. you can see that the silver price is trading in a tapering triangle. The narrower the triangle gets, the higher the likelihood for the price to make big movements. Considering that the fundamentals for silver are very bullish due to governmental support throughout the world benefiting green energy and its implementation.  When the manufacturing volumes increase, there is a good probability that the silver price tries to reach previously all-time highs and maybe even make new highs.


Picture 1. Technical analysis of XAGUSD

While historically, the price of gold has strongly affected the price of silver, today, however, the polarities may have changed. The increase in silver price might pave the way for a stronger gold upward movement.


Disclaimer: This article is for informational purposes only and is not intended as an investment analysis or recommendation to sell or buy commodities. Tavex is not responsible for any decisions made based on this information. Investing is associated with opportunities and risks, and the market value of commodities can both increase and decrease. Past or future yields on the commodities and financial ratios shown above do not represent a promise or an indication of future earnings.

(1) https://www.kitco.com/news/2021-05-04/The-silver-price-is-breaking-out-and-could-drag-a-reluctant-gold-market-with-it-Saxo-Bank.html

 

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