Gold keeps on moving higher into new all-time highs against the USD but it’s worth repeating that silver is more interesting! We suggested yesterday that there’s more money to be made in (more volatile) silver than in gold and now at the time of writing this silver is up by 9.8% while gold is up only 4% from the time of our analysis (blue arrow in the above chart). The price of silver has rallied strongly since. Please note that values on the y-axis are index values resulting from indexing all the lines in the graph to 100. While the chart doesn’t tell us what the exact prices of these assets are it shows the relative appreciation between them starting from July 13th 2020. By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we don’t provide investment advice.
There are several factors that drive the precious metals prices higher. The Covid-19 pandemic creates demand-side problems in the US economy that can lead to a deflationary spiral where people keep on postponing their spending as they expect the prices will depreciate further. This obviously isn’t something that the central banks or the government want. The US Federal Reserve is taking action together with the government to counter the deflationary forces by injecting more liquidity to the US economy. This dilutes the value of the dollar and increases the prices of anything priced in the USD. The fact that prices of gold, silver and palladium keep on moving higher suggests that the markets believe there’s more stimulus to come. And indeed, the democrat lawmakers are demanding for a 3.4 trillion dollar stimulus package which the republicans are hesitant to approve.
What might be the reasons for this strong outperformance of silver relative to gold? There has been speculation that big investment funds are diversifying their precious metals holdings and adding silver and palladium as value plays to their portfolios. While there might be some truth to these speculations it is a fact that silver is an industrial metal and now that economic data has been somewhat encouraging investors are likely to see more reasons to add to their silver positions.
Recent macroeconomic data
- Chinese Manufacturing PMI: 51.1 (50.8 expected)
- US Manufacturing PMI: 54.2 (53.6 expected)
- Canadian GDP 4.5% (3.5% expected)
- NZD unemployment rate 4.0% (5.6% expected)
Macroeconomic releases later this week
- Band Of Englan rate decision (Thursday)
- Canadia unemployment rate (Friday)
- US Non-Farm Payrolls, Average Hourly Earnings and Unemployment rate (Friday)
The US Fed has recently said that they are willing to do whatever it takes to save the US economy. This echoes the famous words by Mario Draghi in 2014, the head of the European Central Bank ECB at the time. EURUSD had been trending higher for the first months of the year when Mr Draghi said that (within its mandate) the ECB is willing to do whatever it takes to preserve the euro. This (see the red arrow in the above EURUSD chart) started a 10-month decline in EURUSD. Now that the biggest and most central bank on the other side of the EURUSD equation has uttered words quite similar to the words from the ECB leader in 2014, it makes us wonder if the current EURUSD up-move is only the beginning of a strong uptrend. We don’t obviously know what the future holds but if this was to happen then the dollar-priced precious metals could trend higher for quite some time.
As usual, these are only speculations and should be only acted upon if price action in the assets in question is supportive. We’ll be happy to go deeper into these topics in future and share some powerful insights and strategies to our VIP Black clients in webinars.
Traders wishing to learn the right skills to improve their swing trading and day-trading skills to take advantage of such moves are warmly welcomed to join our VIP Black program. Start by registering an account and depositing here. We will help you to learn vital skills for trading in different market types.
Key weekly levels in XAGUSD:
- $25.11 to $26.10 (Resistance zone created by two historically important price levels)
- $19.65 (Former resistance level from July 2016)
- $21.13 (Former resistance level from September 2019)
Key weekly levels in EURUSD:
- 1.1580 – 1.1600 range (Psychologically important level and 50% Fibonacci level)
- 1.1830 – 1.1850 range (May and September 2018 highs and 61.8% Fibonacci level)
- 1.2148 – 1.2200 range (The low of 2018 topping formation and 78.6% Fibonacci level)
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