- Silver is down more than 3% over the year, while gold is up over 9%.
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Gold is peaking as a safe haven in light of the banking crisis and inflation
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Silver remains true to the industry and could reach $30 in light of gold’s rally
Poets say: The rose still smells beautiful under another name. The bulls may not agree with this statement: while these bulls are going through the same conditions as other precious metals like their peers in the gold group, the so-called white metal is down more than 3% for the year against the yellow metal’s alleged gains of more from 9%.
What does that mean?
Well, it’s not just about the name. More than a hedge against inflation, gold is now the go-to for anyone looking for a safe haven in troubled times. Silver, on the contrary, is known as an outdoor industrial metal, which is particularly critical in the field of renewable energy. Both serve distinctly different purposes.
This year’s banking crisis and post-pandemic inflation which the Fed has been fighting with the highest interest rates in 40 years also explain why gold peaked and continues to be the higher of the two metals.
Charts by SKCharting.com, with data powered by Investing.com
Silver is an essential component of solar panels, due to its use in photovoltaic power, which drives some of the world’s leading sources of renewable energy. With about 20 grams of silver used in each solar panel, the industry continues to be a vital source of demand for the metal.
Some say that silver has also been attracting safe-haven flows over the past two weeks amid the US banking crisis, however its position against gold could weaken as always.
Harish Manghani, a precious metals strategist, said in a post on FX Street this week:
“Silver hasn’t grabbed the same headlines as the shinier gold, but the second-highest-trading metal has also benefited from the banking crisis.”
Mangani said, referring to:
“The technical scenario in the US/Silver spot remains valid with bullish prospects despite the recent correction.”
Gold returned to $2,000 an ounce on Thursday as Comex New York delivery reached just over $2,001, before closing the session at $1,995.90.
It rose, which is being closely watched by some traders, 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 our energy to advance towards $2010, which will be the first stop in spot gold after that.”
Gold regained bullish momentum after a two-day decline as the greenback, which pits the greenback against a basket of six major rivals including the yen, continued its journey south after mixed messages about the Fed’s interest rate outlook.
The Federal Reserve raised interest rates by another quarter point as expected on Wednesday with its March meeting, reiterating its commitment to lower inflation and not cut interest rates at least for this year.
However, in the aftermath of the banking crisis that has rocked financial markets over the past two weeks, the central bank has also hinted at a possible pause in the rally, fueling speculation that it may only do one more hike.
A pause in Fed hikes could doom the dollar and provide a very positive environment for gold, which is a counter trade for the greenback.
The Fed has raised interest rates nine times in total over the past 12 months, adding 475 basis points to rates, which were cut to just 25 basis points in the wake of the coronavirus pandemic in March 2020.
Ed Moya, analyst at online trading platform Odana, said:
“Gold has become a favorite on Wall Street as many traders remain nervous after the Fed’s decision and over how quickly the US authorities will be able to contain further banking turmoil.
Gold will shine in this environment and seems poised to find a home above the $2000 level. Gaining this increase is not far off and could happen if financial stability concerns are not subsided.”
For gold futures to reach a new record high, the Comex front month contract must rise beyond $2,078.80. For spot gold to rewrite its all-time peak, it would best be at $2,072.90.
In the case of silver, the last time it hit a record high was on April 28, 2011, when the front month futures contract hit a record high of $49.56. Spot silver reached an all-time high of $49.55 on the same day.
With month-to-date gains of around 11% for both silver and silver futures since the start of March, longs in this area are wondering how much higher the white metal can go this time around.
With Thursday’s session settling at $23,166 for the April contract of silver on Comex and closing at $23,121 in spot silver, it would be reasonable to say that few, if any, expect prices to double in the near term to a record high.
Despite that, many seem to be anticipating silver to get a nice traction from the momentum that is lifting gold. The question is how big is this momentum?
SKCharting’s Dixit believes that spot silver could reach just under $30 in the near term.
“The current bullish momentum remains valid above $22.27 and the spot is well positioned on an upward trajectory, targeting $23.60 initially, followed by a retest of $24.00 and a swing high of $24.65,” Dixit said.
