Silver got no love last week, suffering its worst week in thirteen weeks, and raking up a fourth straight month of losses. After losing US $1.35/t.oz between September 13 and September 18, the metal closed on Friday at US $22.38/t.oz. Before last week, Silver had not traded sub-US $22.50/t.oz for the entire 2021. One would have to rewind their charts to November 2020 to find Silver trading below US $22.50/t.oz.
The cause of Silver’s unpopularity might be the signs indicating that the US economy is in decent shape, regardless of Delta variant fears. For one, Retails Sales in the US pleasantly surprised last week, rising 0.7% vs an expected decline of 0.8%. With positive signs radiating from US economic reports, the seriousness of talk concerning a Fed-taper heightens, and with that, a stronger USD, and less demand for metal hedging.
We might be in uncharted territory here. At least according to a technical perspective and recent history. Silver has successfully defended the US $22.50/t.oz price level multiple times over the past twelve months. To find a closing price below this threshold, trek to July 2020, when Silver closed at US $19.40 as it ascended for eight weeks straight, to seven-year highs, topping out right before US $30.00/t.oz.
Now that the closing spell has been broken, a new era of prices may be on the way for Silver. Moving forward, don’t be surprised by a new range for Silver between US $20.00/t.oz and US $22.50/t.oz leading up to an announcement from the Fed concerning a definite taper timeline. It is possible that the FOMC meeting, scheduled for this coming Thursday, followed by Fed Chair Powell’s speech on Friday, will be the events responsible for the metal’s next significant move.
In 2020, Silver had a legendary rise from its low during the peak of the Coronavirus lockdowns in March – up over 140%. Analysts (including me) attempted to justify its price and separate its strong correlation with Gold by arguing that Biden's climate change policies will boost Solar Panels' use, which extensively uses Silver. This may be a catalyst in the longer term.
However, in the short to medium term, Silver is unlikely to be affected by this catalyst. With a new US President in the seat, alongside a decrease in Gold's price, what are we going to see in the price of Silver?
From September till the present, Silver has been fluctuating between $22.40 and $27.30 reliably. We can see clean candles to the downside from the $27 mark, predicting strong moves to the downside if it rejects that strong psychological level.
The Gold /Silver Ratio reached an all-time earlier this year when Silver's price collapsed to $11.94 when investors flew to equities out of fear of market fluctuations. The Gold/Silver Ratio is a ratio of how much silver ounces must buy a silver ounce of Gold.
With Gold quoted to rise in the medium due to inflation concerns, some analysts predict a Bull Run in 2021 for Silver. Philip Newman, a consultant at Metal Focus, stated that "We are going to see new record highs for Gold and Palladium [in 2021], but silver will see the chunkies gains,"
Like Tesla, Gold has had a legendary 2020. Gold reached all-time highs just shy of that $2,080/Oz mark before retracing in the latter part of 2020.
Gold ETF's Ballooned to over $550 Billion inflows, to the point where Gold ETF managers had nowhere to store the Gold they purchased for the ETF's.
With Gold at around the $1,850/Oz mark, investors and traders wonder what has happened to Gold and its future holds.
I believe it is quite simple – Gold did its job, and it did it well. Last year, Gold bolstered one of its essential characteristics: to be a Safe Haven. The first half of the year saw unpreceded and widespread lockdowns amidst a recessionary period across the world. Stock markets plunge, and bond yields tightened.
And, of course, Gold prices rose. As the Coronavirus worsened throughout the year, with second waves and uncertainty when the vaccine was going to come, the price rose even more. However, as things started to ease up around the world, with a vaccine in sight, Gold pulled back. Uncertainty turned into some certainty. Risk-on was back, and Gold was left to be.
Hindsight is 20/20, and it's easy to say now that Gold's price fluctuations were due to this. I would be first to say my prediction of Gold was incorrect. However, this gives us information about how Gold may react in the future.
While Gold was at its all-time highs, the world "valuation" started creeping into analysts' mouths when talking about Gold and its price; a word which I believe should not be associated with any safe-haven whatsoever, and a word which I think is a good indicator as to when to sell your safe haven asset. There should be no hesitation when switching from risk on to safe-haven assets due to the possibility that the safe-haven asset is "overvalued."
With 2021 traveling full steam ahead, amidst Capitol riots, possible impeachment hearings, and increasing Coronavirus cases in America, Gold has settled around the $1,850/Oz mark. Many analysts predict an inflationary period in the US Economy will bolster Gold's price, which still may highly be a possibility.
However, Margaret Yang, a strategist in DailyFX, believes that the market discounted inflationary pressures, and "that means the selloff in Gold could be temporary, and the downside may be cushioned by fresh stimulus to be announced by Biden."
What do you think the future holds for Gold?
…And that excuse is the devaluation of the dollar. Gold is not immune to fundamental events. However, recently has been sideways for the most part of two months.
A theme revolving around Biden's win is the dollar's devaluation, with many banks calling a drop in the dollar if Biden is elected. Given the historical precedent of Gold rallying on dollar weakness, a Biden win may push the yellow metal higher. Furthermore, a sell-off in the equity markets on a Biden win may give Gold's tailwinds as investors and traders switch to risk-off.
Commerzbank Analyst Daniel Briesemann stated that the "Market will not doubt follow the talks in Washington very closely," and that "Gold could profit in the event of a deal because the U.S. dollar would presumably be in less demand then and would probably depreciate".
It is a simple recipe that revolves around the dollar's devaluation and its historically inverse relationship with Gold. Stimulus and Support from the U.S. government and the Federal Reserve are likely to depreciate the dollar, pushing Gold higher. Furthermore, a Biden win may incentivize a further sell-off in the U.S. dollar, again, pushing Gold higher.
Currently, Gold is sitting at $1,922 an ounce – Right on a very strong support/resistance level. It has been on a strong upwards trend from a drop in the previous symmetrical wedge. Furthermore, the highs to the trend's low constitute a full Fibonacci retracement. A break of the $1,958 level, which is another strong support/resistance level and is right on the 50% fib retracement level, before the election, may see Gold rally back to its all-time highs and seek further targets of $2,204.
However, a Trump win on election day may see a sell-off in Gold, with prices breaking the upwards channel down back to a full retracement to $1,847
Are you looking at Gold?
Silver has had a legendary run this year, is heavily correlated with Gold. However, that was only in regards to the movement.
Before September, Silver has outperformed Gold year-to-date, and even from its March lows. Year to date, it has returned just under 50%. Meanwhile, Gold has returned 27%. From March, Silver has returned 68%, while Gold only returned 24% from the same period.
However, in September, the equities' market selloff has transferred to both Gold and Silver, hitting Silver incredibly hard. Silver dropped 14% this month, in comparison to Gold, only falling 3.25%. If Gold was a haven turned speculative bull run, Silver was a speculative run on steroids. However, some fundamental factors may show some profit-taking.
Investors who invest in metals and commodities such as Oil, Silver, and Gold tend to put their capital into ETF backed by metals, instead of buying futures or the physical metal, primarily due to low transaction costs. However, investors have started to take money out of these ETF's, especially Silver backed exchange-traded funds – raising worries that the rally in Silver might be over. IShares Silver Trust ETF has seen a 3% decrease in its silver holdings over the past month to 555m ounces.
The initial case bulls were using to justify the silver trade was its use in Solar Panels. The rally came from the ECB and Joe Biden promoting policies pushing on cleaner power, with the ECB apportioning a large portion of their stimulus package to fighting climate change. However, as risk-off prevailed at the start of this month, investors started to question the actual demand for solar panels at this stage.
Furthermore, with its correlation with Gold, weakness in bull factors for Gold is also associated with a weakness in Silver. Gold is historically associated as a hedge against inflation. With the Fed making it their goal to increase inflation by allowing inflation to go above their 2% mandate, investors and traders question whether they are able to stimulate inflation even amidst their unprecedented rate cuts and quantitative easing.
For now, we've seen a selloff in many risk on assets – so these metals may be a part of that. Will we see further setbacks for the two metals?
Anish Lal did an excellent technical analysis on Gold and its future. You can watch it here.