Silver outshining gold; sees best monthly gains in more than two years as prices push above $24
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(Kitco News) - A shift in risk sentiment, coupled with a weak U.S. dollar and growing expectations that the Federal Reserve will cut interest rates in the second half of the year, is propelling silver prices higher, and the precious metal is outshining gold.
With March coming to a close, silver has seen significant gains this month, rallying more than $3, its best monthly performance since December 2020. May silver futures settled Friday at $24.235 an ounce, up 1% on the day and nearly 4% for the week.
Silver's rally is even outperforming gold as the gold-silver ratio has fallen to a two-month low, currently trading around 82 points.
In a note Friday, Fawad Razaqzada, market analyst at Forex.com, said that the ratio's drop last week below 86 points was a significant move, breaking support of a bearish trend line.
"If the bullish trend remains intact for both metals, silver should shine more brightly, is what this chart is telling us," he said.
Looking at silver's technical outlook, Razaqzada said that with the market notching higher highs and higher lows on the chart, it could be only a matter of time before the precious metal pushes above $24.50 an ounce, breaking its two-year downtrend.
Ole Hansen, head of commodity strategy at Saxo Bank, said silver has room to rally to $25 or even $27 an ounce if the precious metal sees a close above $23.90.
"The metal remains under-owned," he said in a comment on Twitter.
Looking at the precious metal's fundamentals, analysts said silver is simultaneously benefiting as a safe-haven and risk-on asset.
Analysts note that easing fears over the global banking crisis is generating some optimism for the global economy, supporting silver's industrial component. At the same time, concerns that this is only the eye of the storm are providing some safe-haven support to the precious metal.
Even if the banking crisis is resolved, Jonathan Butler, precious metals analyst at Mitsubishi, said that one more sleeper issue could continue to support precious metal safe-haven demand: the quickly approaching debt ceiling.
"The nonpartisan Congressional Budget Office has estimated the government will exhaust its emergency tools sometime this summer, which raises the prospect of a default unless lawmakers can raise or suspend the ceiling. Coming at a time of uncertainty and increased financial commitments from the government as it may be forced to backstop more bank depositors, silver (and gold) may continue to be in demand as a safe haven," Butler said in a report published Thursday.
Similar to gold, silver is also benefiting as a monetary metal as cooler-than-expected inflation data is adding to expectations that the Federal Reserve has finished raising interest rates.
Friday, the U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.2% last month, compared to January's increase of 0.5%. The data was slightly weaker than expected, as economists forecasted a 0.4% rise. In the last 12 months, core PCE inflation rose 4.6%.
According to the CME FedWatch Tool, markets see a 50% chance that the Federal Reserve holds rates steady after its May monetary policy meeting. At the same time, markets continue to expect a rate cut in the second half of the year.
While there is still significant bullish support for silver, analysts at TD Securities said that the market could see some profit-taking in the near term. However, the bank added that the precious metal continues to benefit from solid physical demand, particularly from China.
"The white metal continues to hold a strong risk-reward profile given recent signs that Shanghai traders are accumulating silver once more, which points to resilient demand for silver even as commodity internals point to sluggish demand for raw materials," the analysts said. "That being said, the white metal will be more likely to reach escape velocity should prices break above $25.20/oz, which would favor a resumption in long acquisitions from trend followers."