Silver May contract settled at $16.58 an ounce on last Friday, up 1%, ending the week with 2% weekly gains, driven by the same bullish factors that boosted Gold prices (http://365commodities.com/gold-rallies-cocktail-geopolitical-risks/ )such as Geopolitical risks, weaker dollar currency and a turn of investors to more “safe heaven” assets.
Fundamental Analysis: Silver under-performs Gold
- Silver prices continue to lag behind the Gold’s strong performance as investors prefer Gold as the primary “safe heaven” metal.This week saw the gold/silver ratio (gold-to-silver price ratio, which measures the amount of silver ounces that can be exchanged for one ounce of gold, is historically high, suggesting a bargain in silver)hit a new multi-year high at 81.50 points; the ratio’s historical average is between 50 and 60 points.In 2017, gold gained nearly 14%—roughly double the rise for silver.
- Even though Silver is considered as a “precious metal” together with Gold, it has a significant industrial component, equivalent to almost 60% of its markets, because it is less reactive, good conductors and highly malleable. Therefore, a possible slowdown in the global growth based on the Trade War and especially a pullback of the Chinese economy which is the biggest consumer of Silver for industrial reasons, would slowdown the demand for Silver and make it less preferable as a “safe heaven” asset. In other words, Silver is not the first metal that comes to mind for fund managers who are looking for “safe heaven” assets.
Silver has been trading within a symmetrical triangle pattern since last year and the price is currently in the process of testing the combined resistance of the upper trend line and its 200 EMA of $17 and the support level of the lower trend line of $16. Given the sharp rise in global market volatility, investors could flock into silver, and a close above $17 would likely trigger a surge toward the 2016 high near $20.