(Kitco News) - Although silver hit resistance at $39 an ounce, it still has plenty of momentum to challenge its 2011 all-time highs, according to one market analyst.
After reaching a nearly 14-year high overnight, silver is experiencing strong selling pressure. Spot silver last traded at $38.27 an ounce, down 0.14% on the day. However, Nick Cawley, contributing analyst for Solomon Global, said that several factors are aligning in silver’s favor, which should support higher prices.
“The spot silver price is set to move higher over the near term and test psychological chart resistance at the $40/oz. level, before prior monthly highs at $43.35/oz. (September 2011) and $44.24/oz. (August 2011) come into play,” he said in his latest note.
Cawley noted that industrial demand is providing solid fundamental support for the precious metal, but he added that silver’s role as a monetary metal is fueling the new momentum.
“Currency debasement typically drives investors toward hard assets, and silver and gold have benefited from this trend. The dollar’s weakness stems partly from ongoing concerns that U.S. inflation may remain sticky due to proposed tariffs and other policy measures,” said Cawley. “These inflationary fears have triggered a renewed surge in demand for safe-haven currencies and precious metals. Investors are increasingly seeking protection against potential currency devaluation and purchasing power erosion, making silver an attractive hedge against economic uncertainty.”
At the same time, silver is also expected to benefit from an eventual shift in U.S. monetary policy. Although markets are not pricing in any rate cuts later this month, there are still strong expectations that the Federal Reserve will begin easing rates in September.
“Should U.S. interest rates decline significantly, the environment would become even more favorable for a range of precious metals. Lower rates reduce the opportunity cost of holding non-yielding assets like silver and gold, potentially driving prices substantially higher. Unless the fundamental backdrop changes, silver appears well positioned to extend its impressive rally and reach new multi-year highs in the coming weeks,” said Cawley.
Although silver is poised to move higher, Cawley noted that he does not expect it to continue outperforming gold. Silver’s brief spike above $39 an ounce pushed the gold/silver ratio to 85.88, its lowest point since December. The ratio has dropped nearly 20% from its April highs above 107.
“The spread is back into a multi-year trading channel, and the MACD indicator suggests the spread is becoming oversold, so further silver outperformance against gold is likely to be limited in the coming months,” said Cawley.
