(Kitco News) - The gold market still has plenty of room to move higher as economic uncertainty and geopolitical chaos drive safe-haven demand. However, one market strategist said that now could be the time to look at silver.
In a recent interview with Kitco News, Michele Schneider, Chief Market Strategist at MarketGauge, said that she has been neutral on gold and silver as prices have been consolidating. However, she added that she would be looking to buy silver on a solid breakout above $34 an ounce.
The comments come as silver sees a significant rally at the start of the week. Spot silver last traded at $34.39 an ounce, up more than 4% on the day. The precious metal is experiencing its biggest rally since mid-October.
While silver is attracting some attention in the marketplace, Schneider said that she is still being patient, as there is significant resistance in this area. She added that she wants to see some follow-through buying on this breakout.
She said that her message to investors this year is “to let the price action dictate the story.”
“When buyers buy strength, that’s the start of a bigger move higher,” she said. “If a breakout above $34 holds, then I think it's only a matter of time before we see $40.”
Meanwhile, spot gold last traded at $3,374.90 an ounce, up more than 2.6% on the day.
“Gold and silver look like they want to go higher,” she added. “At this point, anything could push prices. It won’t take much.”
Although gold will continue to do well in the current environment, Schneider said that the recent spike in the gold/silver ratio could indicate that silver is now ready to shine.
Schneider pointed out that the gold/silver ratio has dropped below its 50-day moving average, potentially signaling the long-awaited rotation into silver.
Last month, the gold/silver ratio hit a five-year high, spiking to 107 points as gold hit an all-time high of $3,500 an ounce. Schneider said that she sees some similarities between the 2020 peak and today’s price action. In 2020, the gold/silver ratio dropped from record highs to a six-year low, correcting 51% within a year.
As to what could propel gold and silver higher, Schneider said that she expects the Federal Reserve to cut rates sooner rather than later. Although inflation remains elevated, a slowing economy will likely force the U.S. central bank to ease interest rates.
She added that lower interest rates will support renewed industrial demand for silver, which makes the precious metal a better inflation hedge compared to gold.
According to the CME FedWatch Tool, markets expect the Federal Reserve to cut interest rates in September. However, Schneider said any signal from the Fed that a rate cut is coming should be enough to spark new interest in gold and silver.
Although Schneider favors silver over gold, she added that gold still holds plenty of value as an important monetary asset.
She noted that both gold and silver should perform well as the U.S. dollar continues to lose ground due to growing geopolitical uncertainty.
“There is growing sentiment that foreign investors can’t trust the U.S., and that will continue to hurt the U.S. dollar,” she said.
While both gold and silver will benefit from a weaker greenback, Schneider said that gold has an advantage because it is viewed as a more important monetary metal—being the asset central banks buy.
Looking at the U.S. dollar, Schneider said there is significant downside risk, as it has broken below an eight-year business cycle. She noted that the U.S. dollar has dropped below the 80-month moving average twice before, in 2011 and 2020. She added that the 2011 correction came after S&P downgraded the U.S. government’s credit rating as it continued to increase debt following the 2008 financial crisis.
Despite significant fears in the marketplace, the U.S. dollar is struggling to attract any safe-haven bids, with prices trading near a 3.5-year low.
“Both the monthly dollar chart and the [gold/silver] ratio chart are oversold—but any rally should be shallow and short-lived if this is the new trend,” she said.
