- Silver down more than 3% on the year, while gold is up over 9%
- Gold's safe-haven status seems to have hit zenith with banking crisis, inflation
- Silver stays true to industrial value, could reach $30 on gold’s coattails
A rose by any other name would smell as sweet, we’re told. Silver bulls might disagree: While they’re in the same precious metals bucket as their peers in gold, the so-called white metal is down more than 3% for the year versus the purported yellow metal’s gain of more than 9%.
What gives?
Well, it’s not just what’s in a name. Gold is more of an inflation hedge, the go-to now for anyone seeking a safe haven in troubled times. Silver, on the contrary, is known as an out-and-out industrial metal, critical especially in renewable energy. Both serve distinctly different purposes.
This year’s banking crisis and the post-pandemic inflation hangover that the Federal Reserve has been fighting with the sharpest rate hikes in 40 years will also explain why gold appears to have reached its zenith and continues to be the bigger of the two.
Charts by SKCharting.com, with data powered by Investing.com
Silver is a key element in solar panels, due to its usage in photovoltaic power, which drives some of the leading sources of renewable energy globally. With about 20 grams of silver being used in every solar panel, this continues to be a vital source of demand for the metal.
Some say silver has also been attracting haven flows over the past two weeks amid the U.S. banking crisis, only that its standing against gold has been underplayed as always.
Precious metals strategist Haresh Menghani said in a post on FXStreet this week:
“Silver price has not made the same headlines as its brightest counterpart gold, but the second-highest traded metal has also profited from the banking crisis.”
Referring to spot silver by its symbol, Menghani said:
“The technical scenario in XAG/USD remains with bullish potential intact despite the recent retracement.”
Gold returned to $2,000 an ounce on Thursday as the benchmark futures contract for April delivery on New York’s Comex reached just above $2,001, before settling the session at $1,995.90.
The spot price of gold, more closely followed than futures by some traders, rose to above $2,003 on Thursday, before settling at $1,993.50
Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com, said:
“We are regaining energy to advance towards $2010, which would be the first stop in spot gold after this.”
Gold regained upward momentum after a two-day slide as the Dollar Index, which pits the U.S. currency against a basket of six competing majors that include the euro and the yen, continued its journey south after mixed messaging on the outlook for rates by the Federal Reserve.
The Fed raised rates by another quarter point as expected on Wednesday as its March meeting, reiterating its commitment to bringing down inflation and not cutting rates at least for this year.
But in the wake of the banking crisis that jolted financial markets over the past two weeks, the central bank also hinted at a potential pause in its hike cycle, triggering speculation that it might do just one more hike.
A pause in Fed hikes could spell doom for the dollar and be hugely positive for gold, which is a contrarian trade to the U.S. currency.
The Fed has raised rates nine times altogether over the past 12 months, adding 475 basis points to rates, which were slashed to just 25 basis points in the aftermath of the coronavirus pandemic which broke out in March 2020.
Said Ed Moya, analyst at online trading platform OANDA:
“Gold is becoming a favorite trade on Wall Street as many traders remain nervous post-Fed and over how quickly will U.S. authorities be able to contain further banking turmoil.
Gold is going to shine here and it seems positioned to find a home above the $2,000 level. A run to record territory is not that far away and could happen if financial stability concerns do not ease.”
For gold futures to reach a new record high, Comex’s front-month contract has to rise beyond $2,078.80. For spot gold to rewrite its all-time peak, it has to best $2,072.90.
In silver’s case, the last time it hit a record high was on April 28, 2011, when its front-month futures contract hit a record high of $49.56. Spot silver got to an all-time high of $49.55 the same day.
With the month-to-date gain of around 11% for both silver futures and spot silver since the start of March, the longs in this space are wondering how high the white metal could get this time.
With Thursday’s settlement of $23.166 for silver’s front-month April contract on Comex and the $23.121 close on spot silver, it would be logical to say that few, or none, expect prices to double in the near-term to reach a record high.
Notwithstanding that, many seem to expect silver to get a good run from the momentum lifting gold. The question is how much.
Dixit of SKCharting thinks spot silver could get to just under $30 near-term.
“The current bullish momentum remains intact above $22.27 and the spot price is well positioned on a bullish path, targeting $23.60 initially, followed by a retest of $24.00 and a swing high at $24.65,” said Dixit.
With a price action encased within the $23.23 - $22.75 range, spot silver’s uptrend was supported by the 5-Day Exponential Moving Average of $22.80, which was in tune with the 61.8% Fibonacci level that retained its momentum.
On the flip side, any exhaustion and weakness below $22.70 will give rise to more selling pressure that could lead to the 100-Day Simple Moving Average of $22.47, followed by $22.27, Dixit said, adding:
“Though in the short term, we can witness some sideways consolidation towards support areas of $22.7 and $22.27, further upside potential towards $24.00 and $24.65 remains wide open.
Strong acceptance above $24.65 will put spot silver on a renewed uptrend, which targets $25.80 - $26.90 and $27.60.”
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Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.