(Kitco News) – Gold and silver are breaking out, and the macroeconomic environment is beginning to support a possible run to fresh highs in the metals complex, according to Ole Hansen, Head of Commodity Strategy at Saxo Bank.
Hansen wrote that while he and many other strategists were predicting a period of prolonged consolidation, precious metals have surprised to the upside.
“[J]ust days into June, the market narrative swiftly changed: gold and, more notably, silver pierced through key technical barriers, while platinum paused to consolidate after a sharp rally in May,” he said. “The immediate catalyst was a broadening decline in the US dollar, with the Bloomberg Dollar Spot Index now trading near a two-year low. However, beneath the surface, resurgent geopolitical risks and renewed trade war anxieties are also feeding into the bullish momentum across the precious metals complex.”
Looking beyond the technicals, Hansen noted that the broader macroeconomic environment is also shifting. “For decades, large global current account surpluses—mirrored by persistent US deficits—have found their way into US assets, helping to sustain dollar strength,” he wrote. “That dynamic, however, is now in question. Protectionist trade policies and rising political polarization, once viewed as transitory, are increasingly seen as structural risks, prompting sovereign wealth funds and institutional investors to rebalance away from overexposure to US equities and Treasuries.”
This ongoing reallocation has already lifted gold prices materially higher as investors worry about U.S. fiscal sustainability. “The US Treasury faces a formidable refinancing wall, with roughly $9.2 trillion in Treasury securities maturing in 2025—equivalent to nearly 30% of US GDP and a full third of outstanding marketable debt,” Hansen noted. “Layer on top the CBO’s projected $1.9 trillion deficit for FY 2025, and the stage is set for an aggressive funding schedule in a potentially less hospitable bond market.”
He said that gold has now broken out of the downtrend it entered following April’s record high of $3,500 per ounce, with the former resistance line at $3,325 now functioning as support. “Additional layers of support are seen at $3,280 and the 55-day moving average at $3,223,” he said. “While we remain cautious about declaring an imminent charge to fresh all-time highs, the macro setup is shifting in favour of precious metals. A potent mix of post-stimulus fiscal drag, tariff-induced supply shocks, waning consumer confidence, a weakening labour market, and deteriorating real spending power may soon warrant a dovish and potentially stronger-than-expected policy pivot from the Federal Reserve, potentially then sending bullion prices higher towards USD 4,000.”
Turning to silver, Hansen said that the gray metal is breaking higher and is now targeting the peaks of last fall.
“Silver surged on Monday, posting its strongest one-day rally since last October, climbing 5.4% to pierce the key resistance-turned-support level at USD 33.68,” he said. “The move was underpinned by a broad-based rally in commodities—most notably gold and copper—as well as renewed weakness in the US dollar, which continues to trade near multi-year lows on a trade-weighted basis.”
“While the rally briefly stalled just shy of the October 2023 high at USD 34.90—a 12-year peak—some modest profit-taking emerged,” he added. “Importantly, the pullback has yet to challenge the newly established support at USD 33.68, preserving the potential for additional near-term upside.”
Hansen noted that silver’s dual role as both a monetary and industrial metal makes sensitive “not only to gold and dollar movements, but also to industrial demand signals,” and from copper in particular. “As such, continued strength in copper prices—fueled by resilient Chinese demand, tight inventories outside the U.S., and green energy transitions—could help sustain the rally in silver.”
Another key indicator he’s watching is the gold:silver ratio, which is showing early signs of a breakdown below 98. “Note, the ratio’s five-year average is much lower at around 82, and while we do not envisage a return to that level, given the relative stronger pull in gold from central banks, a softening back towards the upper end of the 2023 to 2024 trading range around 91.5 cannot be ruled out, and would at an unchanged gold price signal a silver move above USD 36,” he said.
From a technical perspective, Hansen said the setup in silver remains constructive as long as the $33.68 support level holds. “A decisive break above the October high at USD 34.90, followed by USD 35.20 - the 61.8% Fibonacci retracement of silver’s steep decline from its 2011 high near USD 50 to the 2020 low at USD 11.64, would signal fresh momentum,” he said.
