Silver continues to outpace Gold and has much more left in the tank

  • Despite a strong Dollar, Silver prices managed a 0.51% advance into the Wall Street close.
  • The first upside target is the 23.6% retracement level at $22.15.

Precious metals scored impressive gains in August, but silver, riding the coattails of gold's early advance, has been the most impressive. silver is up around 11% month to date, with its yearly gain at roughly 18%. 

Despite the dollar's advance in recent sessions, toppling the 99 handle in the DXY on Friday as the euro finally fell flat on its face, silver prices still managed a 0.51% advance into the Wall Street close on a spot basis. Silver travelled from a low of $18.07 to a high of $18.47. The December contract ended at a more than two-year high of $18.342 an ounce. 

By comparison, gold spices on a spot basis were down -0.27%, falling from a high of $1,533.15 to a low of $1,517.15 as the Dollar spiked and speculative positions squared up for month-end and the long US weekend. December gold settled at $1,529.40 an ounce, giving back some ground after hitting a more-than-six-year high earlier in the week. 

Longer-term fundamental risks are to the upside for precious metals

However, considering the climate of negative interest rates, central banks racing to the bottom which is weighing on FX, nations accumulating gold amidst questions over the Dollar as being a stable reserve currency, trade war uncertainties and recessionary looking PMIs, its no wonder that gold has climbed about 17% higher so far this year and could be expected to remain elevated. 

"Indeed, dovish central banks globally, along with inverted yield curves and a surging pile of negative-yielding debt, serve as a great fundamental backdrop to remain bullish," analysts at TD Securities argued:

"Meanwhile, the Presidents continued criticism of the Fed, politics in Europe, and the increasingly tense situation in Hong Kong ahead of this weekends outlawed rallies, provides additional scope for gold to continue moving higher despite the stretched positioning. While gold has taken a breather, platinum has stepped into the spotlight in the precious metals complex. While gold and silver have seen strong rallies in the past months, platinum is now playing catch up to the positive precious metal environment, with CTA buying helping to fuel the latest rally."

Gold-silver ratio sees silver with lots of catch up work to do

The question is whether silver has more to catch-up by as it was underappreciated for most of 2019 while gold leapt through the key $1,400 level. The gold to silver ratio is now in the 82 levels, ending Friday around 83 having travelled down -0.73% from 84.07 the high - It was in the low 93s for every ounce of gold at the highest point in the year so far. Technically the ratio is still very high - The 23.5% retracement of 2010 to year-to-date rally, (from when the ratio was in the 30s) is all the way down in the 78s. A 50% mean reversion target of the same range is located in the 62s - Silver has plenty more to go on the upside in this environment. 

Silver levels

Silver prices have dropped from the 49.80s at their highest point in April 2011. The first upside target is the 23.6% retracement level at 22.15. Thereafter, the 38.2% target is 27.40s - a 50% mean reversion is located in the 31.70s and a move beyond there will look to the 2012 highs through the 61.8% of 36 at 37.50. On the downside, tests all the way to 17.50s would not be out of the question (50% Fibo of 2016 highs to recent swing lows) but the 17.70s could offer a solid level of support on the way there. 

As for gold

 The 50% comes in at 1478 which was also a level of support on the 13 Aug volatility and downside spike. A 61.8% retracement at 1,460 guards the 19 July swing highs at 1,452.93.  However, while holding in the 1,520-1,525 zone, (1518 was the low) bulls are still in the running for a test a break of 1,558 to open 1,590, the 127.2% Fibo target area. Thereafter, its blue skies to the 78.6% Fibo of the 2011 to YTD range located in the 1,730s ahead of the triple-top peaks of the 1,800s.

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