Silver precious metals to strengthen further

Precious metals are continuing to recover nicely from their bear trend that had started from July of last year. Gold has hit its highest level since the end of November, while silver has reached its best level since the middle of December, though both metals were trading narrowly mixed at the time of this writing. The slightly weaker dollar and expectations of rising global inflation have been the biggest drivers behind gold and silver. Gold, as well as a perceived safe haven metal is also considered to be a good hedge against inflation.

Though the dollar has bounced back today, I think there is potential for it to weaken again as currently there are no fresh catalysts to drive it higher – granted Donald Trump is speaking later, which may cause some volatility in the FX and equity markets, and by extension gold and silver. Despite my short-term bearish view, the dollar remains well supported in the long-term as the Fed continues to be the only major hawkish central bank out there.

Thus, in the short-term, we could see gold and especially silver make further progress. Why “especially” silver? Well, the daily chart of Gold-Silver ratio looks like it is starting to turn lower again, meaning that gold will be underperforming silver going forward. It is worth pointing out the obvious here which is that both metals could also fall in unison; the chart merely highlights the relative performance of one against the other regardless of the direction of the two precious metals.

Now in terms of silver itself, the grey metal continues to rise inside its bearish channel. So, for the time being, one has to be wary of the fact that silver is technically still in a bear trend. However, it is very encouraging to note the key long-term support area around the $16 handle has held as support (see shaded area on the chart). Silver now needs to break its trend of lower lows and lower highs in order to confirm a change in direction. This makes the area around $17.20 (the last swing high) very important – if silver breaks through this level then we could see an eventual bullish break outside of the bear channel, potentially leading to some significant gains.

Conversely, if short-term supports such as $16.70 and $16.25 break then a revisit of $16 would become highly likely, and perhaps this time the support may give way for a move towards the 2015 lows. This is not our base case scenario, however.

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.