Silver rallies but not as Gold’s strong performance

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

  1. 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.
  2. 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.

Technical Analysis:

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.

silver rallies on geopolitical risks

 

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