(Kitco News) - While gold prices have meandered listlessly through the day, it’s silver that has suffered, with the metal falling sharply below its 50-day moving average, a critical support level analysts have been watching.
Gold continues to trade within a tightening range between $2,300 and $2,350 an ounce. August gold futures last traded near session lows at $2,331.10 an ounce, down 0.57% on the day.
However, silver has significantly underperformed its sister metal. July silver futures last traded at $28.915 an ounce, down 2% on the day. The selling pressure picked up momentum when the metal was unable to hold support at the 50-day moving average of $29.925 an ounce.
Gold has actually outperformed silver in the last three sessions pushing the gold/silver ratio back above 80 points, near its highest level since mid-May.
According to some analysts, silver is more sensitive to U.S. dollar moves, which has recovered from Monday’s selloff. The U.S. dollar index last traded at 105.62, up 0.10% on the day.
The U.S. dollar continues to be driven by the Federal Reserve’s monetary policy as expectations ebb and flow around when the central bank will cut interest rates. Commodity analysts have pointed out that gold has been able to weather this volatility a little better because it is seen as a stronger safe-haven asset than silver.
Although a rate cut would benefit silver, if the U.S. central bank is forced to cut rates because the U.S. economy is slowing, that could weigh on the precious metal’s industrial demand.
Analysts have said that critical support to watch in the silver market comes around $28.60 and $28.70.
Akhtar Faruqui, a market analyst at FXStreet.com, said in a note Tuesday that silver’s technical picture is turning negative.
“The momentum indicator Moving Average Convergence Divergence (MACD) suggests a bearish bias for silver,” he said. "This configuration indicates that the overall trend might still be positive as the MACD line is above the centerline. However, the momentum is weakening as the MACD line is below the signal line.”
Faruqui added that in the current environment, he could see silver prices falling to $28.00, with the potential to test support at $27.76 an ounce.
Although gold and silver continue to struggle in the near term as investors focus on interest rates, many analysts continue to see lower prices as a tactical opportunity to gain exposure, as both precious metals remain in a solid uptrend.
While gold has the upper hand on silver as a monetary metal, analysts have noted that the grey metal continues to benefit from the green energy transition as solar power demand drives industrial consumption.
At the same time, silver’s industrial demand also makes it a more attractive inflation hedge compared to gold.
Looking ahead, analysts expect gold and silver to remain fairly range-bound ahead of Friday’s Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred inflation gauge.
