Being a werewolf in Asia today is a hazardous pastime, with silver bullets flying everywhere. Silver exploded 7.0% higher this morning, mirroring an almost identical move yesterday in Asia in both scale and timing. Silver is now higher by some 15.0% for the week. The aggressive rally has also dragged gold higher by 1.0% today, with the yellow metal $50 higher than Monday.
Silver may have been the beneficiary of a double whammy. Firstly, as the poor man’s precious metal, it is catching gold’s tailwind from negative real yields across the US yield curve. Secondly, it has industrial applications and will thus, benefit from the buy-everything global reflation trade prevalent in markets this week. Silver itself always has serious liquidity issues when compared to gold futures, for example. That means that when silver moves, those moves can be extreme.
Silver is now nearly 30% higher from its June lows, having traced out strong support at $17.00 an ounce and seems to be a stealthy directional indicator for markets elsewhere. I would hazard a guess to say equity markets and currency markets are unlikely to correct until we see silver do so first.
The overnight session was notable for the renewed energy seen in the great US dollar rotation trade. The dollar fell almost everywhere, as the tailwinds from the EU pandemic package, and the inspiring news on the COVID-19 vaccine front turned into hurricane-force winds. The trade-centric Australian dollar was a notable outperformer, climbing an impressive 1.60% to 0.7130 as a proxy to the global economic recovery. The euro and sterling also outperformed, rising 0.60%.
With the data calendar for the rest of the week strictly second-tier, sentiment and momentum will continue to drive markets. Notably in the currency space, some notable breakouts versus the US dollar have occurred, or appear likely to very soon. The same can also be said for precious metals and energy.
One risk point that seems to have been pushed off the headlines is the next fiscal package from the US government. The present package directing monetary transfers to business and individuals, effectively ending this week. Congressional Republicans and Democrats are far apart at this stage, and a complete breakdown in negotiations would inevitably take the gloss off the recovery rally. For now, however, markets seem to be pricing in that sense will prevail. That is not a concept we are used to from Washington DC these days, but if the European Union can do it, I guess anyone can.
For now, despite its dislocation from everyday reality, the FOMO, V-shaped global reflation trade has strong momentum, with its underlying central bank easy money forever engine room continuing to run at max power. Either sit on the side-lines and watch the show unfold, or get on board for the ride. Picking tops though in this environment, is a hazardous occupation, and only for the brave, very deep-pocketed, or foolhardy.