Silver can still outperform gold even after hitting brick walls Friday at $29.90 and $2,448

(Kitco News) - A massive rally in gold and silver brought new attention to the precious metals market early Friday; however, it has also prompted warnings from some analysts that investors shouldn’t chase prices at current levels.

Early in the North American trading session, silver prices rallied to within striking distance of $30 an ounce, its highest level since February 2021; the precious metal was up nearly 6% on the day at its session high. However, the market has been unable to sustain the momentum as prices fall back to critical support/resistance levels. May silver futures last traded at $28.44 an ounce, up 0.71% on the day.

Meanwhile, gold prices have fallen back below $2,400 an ounce. At one point, the yellow metal was up more than 4% at its peak. June gold last traded at $2,384.70 an ounce, up 0.53% on the day.

According to analysts, the sharp rally in gold and silver has been driven by growing geopolitical concerns as tensions in the Middle East continue to rise, driving oil prices higher. At the same time, investors are looking to the precious metals to protect their purchasing power as inflation remains a stubborn threat.

Although gold and silver remain in structural bull markets, some analysts have said Friday’s spike is a good place to take profits. At the same time, the focus on silver continues to grow as analysts still see substantial value in the marketplace.

“We have been positive for silver for a long time now, and it still needs to play catchup with gold, but this is dangerous territory,” said Bart Melek, Head of Commodity Strategy at TD Securities.

Melek added that there is some significant resistance at $29.90, which was the peak for Friday’s rally. He said that the next level to watch is $30.80.

Although gold and silver have hit a bit of a speed bump and have been unable to hold their gains, Melek said that the volatility doesn’t change the underlying support in the marketplace.

TD has been extremely bullish on silver as multiple annual supply deficits have taken their toll on above-ground stocks. The Canadian bank said that above-ground stocks could be depleted in the next two to three years.

“Lackluster price action in forwards suggests our thesis is not currently being priced,” TD said in a note Friday. “The right tail appears extremely fat, and our analysis continues to suggest the risk of a #silversqueeze is underpriced.”

Christopher Vecchio, head of futures strategies and forex at Tastylive.com, said that while he likes gold and silver, he will not be chasing the market at current levels. He added that he prefers silver over gold because it needs to play catchup in the precious metals market.

Although geopolitical fears appear to be the main driver behind Friday’s early morning rally, Vecchio said that both gold and silver have significant fundamental support as inflation remains stubbornly elevated.

“The Federal Reserve has been telling us that their next move is going to be a cut even though we see solid economic growth and stubborn inflation. This is going to drive real yields higher, and that is a positive environment for gold and silver,” he said. “I think silver is just getting started but you do have to be aware of the volatility. The last thing you want to do is chase this market.”

Vecchio added that he would not actively short gold and silver, even if the markets are overstretched; he said he continues to buy on dips.

For silver, he said that he would look to buy at its one-month moving average, “which unfortunately is significantly lower than current prices,” he said.

As to where silver can go, one trader said that investors should pay attention to the gold/silver ratio. The ratio is currently trading around 83 points, down sharply from the 90 level seen one month ago. However, the ratio’s historical average is around 70 points.