The silver price is breaking out and could drag a reluctant gold market with it - Saxo Bank
Ole Hansen, head of commodity strategy at Saxo Bank, noted in a report Tuesday that the silver market started the week with its best day since early February as prices pushed to a two-month high above $27 an ounce.
Hansen added that Monday’s price action in silver was a critical technical breakout for the precious metal. While silver is down from Monday’s high, Hansen said that it is still holding above crucial support following its breakout. July silver futures last traded at $26.97 an ounce, relatively unchanged on the day.
Meanwhile, gold prices have fallen from Monday’s nine-week high. June gold futures last traded at $1,787.90 an ounce, down 0.22% on the day.
"Silver has shown before what it can do when finding momentum. First, however, it needs to confirm the level of support below around the 26.60 area,” Hansen said in a comment to Kitco News.
Hansen added that silver is attracting new investor interest as the precious metals industrial demand continues to grow.
"Rising growth expectations together with the prospect for governments supported infrastructure plans, as well as the green transformation and reflation focus, have all helped drive a strong rally across industrial and platinum group metals in 2021. Silver has been caught between two chairs with the market struggling to work out whether the impact from industrial metals should hold a bigger sway than struggling gold,” he said in his Tuesday note.
"The renewed pull from surging industrial metals can be seen through the gold-silver ratio, which has been in a downtrend during the past month. From above 70 ounces of silver to one ounce of gold on April 1, it has since declined to a seven-week low at 66.5,” he added.
Sentiment in the silver market is dramatically different from gold as the yellow metal fails to break above $1,800 an ounce. Hansen said that gold’s failed breakout is frustrating and confusing a lot of traders.
Last week, Hansen told Kitco News that he is neutral on gold; however, he added that he still sees potential for gold prices to eventually break out of their current consolidation pattern.
"The short-term technical outlook still looks promising above $1,765, and a break above $1,800 could signal a move towards the $1,818 and $1,833, an area that undoubtedly would begin to shake out long-held trend following short positions,” he said.
As to what will propel gold prices higher, Hansen said that he continues to watch historically low real bond yields and higher breakeven rates in the bond markets. He added that silver’s new momentum could help to push gold prices higher.
"If silver moves higher, I think gold will follow like a screaming kid not wanting to let go of his/her TikTok,” he said.