Gold isn’t the only precious metal to shine

By David Morrison  |  06/02/2019 12:55

Gold and silver have made strong gains since last summer. Both are in demand after a period of neglect on ‘safe-haven’ demand
 
There’s been renewed interest in gold over the last six months as the precious metal made steady gains from its August low. For most of last year gold was out of favour with investors thanks to the booming stock market. But it rallied off oversold conditions and then pushed steadily higher on safe-haven demand as equities slumped in the third quarter of last year. It is a testament to gold’s resilience, and indicative of continued investor concerns, that it has held these gains despite a sharp snap-back in equity prices over the last six weeks.
 
Silver also shines
 
Silver has also benefited from increased safe-haven demand. As can be seen from the chart, it formed a double bottom between August and November last year. It then rose steadily before surging above resistance around $14.75 in mid-December. The subsequent rally ran out of steam one dollar later around $15.75. But after a corrective sell-off silver sprang upwards again, breaking above $16 at the end of last month. Prices have pulled back since and are currently hovering around a line of intermediate support around $15.75. A more substantial pull-back can’t be ruled out with the corrective sell-off low of $15.15 an obvious target. Obviously, if silver were to fall back that far then the sellers would look to take it down further. But there’s now a solid area of support around $14.75 which should prove difficult to break.
 
Trend change?
 
If silver can make further gains from its present position, then we should see the moving averages indicate a medium-term change in trend. The 50-day Exponential Moving Average (EMA) has crossed above the 100 EMA and is touching the 200. If the upside momentum continues, then it won’t take long for both the 50 and 100-day EMAs to cross above the 200, which would be bullish.
 
Gold/silver ratio

Silver is notoriously volatile, and margins are correspondingly high. This is one of the reasons that it tends to be less popular than gold with traders anxious to buy or sell precious metals. But it’s worth considering silver’s cost relative to gold to understand where the real value may be. Dividing the price of an ounce of gold by an ounce of silver gives us the gold/silver ratio. This is currently just over 83 ($1,313 divided by $15.73) which is historically high, suggesting that silver is cheap relative to gold. Now this ratio has been over 80 since last August, and there’s nothing to say that it won’t stay above here. But there’s also a strong likelihood that it will narrow again, suggesting that silver will outperform gold in the coming months. Unfortunately, we can’t tell if that means silver is a ‘buy’, as the differential could narrow if both precious metals declined, with gold falling faster than silver. But it’s still worth keeping an eye on.
 
Silver Chart
 


 
 
Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.