What is preventing silver from rising while gold remains above $2,400?
Gold has been maintaining a strong uptrend, establishing new bases with each rally. However, this momentum has not extended to the entire sector, as silver continues to struggle to find its footing.
Gold is striving to hold support at higher lows around $2,400 an ounce, while silver is languishing around $29 an ounce. Silver's underperformance compared to gold has driven the gold/silver ratio to its highest level in two months, back above 82 points.
The gold/silver ratio has surged 14% from its multi-year lows in May. September silver futures recently traded at $29.185 an ounce, down 0.45% for the day, whereas August gold futures last traded at $2,405 an ounce, up 0.43% for the day.
Analysts have attributed gold's performance to its role as a safe-haven asset amid rising geopolitical uncertainties, particularly with the upcoming U.S. elections in November.
“Silver usually follows the price movements of gold disproportionately, but this has recently only applied to the downside. The previous upward movement in gold following the US inflation figures was largely ignored by silver,” said Carsten Fritsch, Commodity Analyst at Commerzbank. “Silver's relative weakness is likely due to the struggles in base metals, as industrial applications are expected to account for nearly 60% of silver demand this year.”
Commerzbank also noted that base metals are facing challenges due to declining demand in China, though analysts believe the selloff is overdone.
“Central banks' rate cuts, both implemented and anticipated, should lead to an economic upturn, improving the currently negative market sentiment,” the analysts said. “Additionally, lower prices should pressure metal producers to reduce production.”
Despite silver's ongoing struggles, many investors remain hopeful about its prospects.
In a recent Kitco News interview, Robert Minter, Director of Investment Strategy at abrdn, expressed optimism that silver will eventually outperform gold as the Federal Reserve starts to cut interest rates.
“Looking at the last three rate cycles, in 2000 gold rose 57%, while silver increased 65%; in 2006, gold climbed 235%, and silver surged 318%; and in late 2018, gold went up 69%, while silver rose 101%,” he noted. “Silver is the higher beta play.”
Julia Cordova, Founder of Cordovatrading.com, also conveyed her optimism about silver's potential to recover.
“Silver followed through on the confirmed weekly bearish divergence from last week, and the weekly close was outside of the possible pennant structure to the downside, but I think it is likely to outperform gold this week if it can regain $29.855. $28.41 is strong support," she said.
James Hyerczyk, Senior Technical Analyst at FXempire, highlighted a key support level for silver at around $28.50 an ounce.
“The short-term outlook for silver appears bearish due to its dual nature as both a precious and industrial metal,” he explained. “Traders should watch for a potential break below the $28.57 support level, which could trigger further downside. However, upcoming economic data, shifts in Fed policy expectations, or changes in industrial demand could introduce volatility and potential turning points in the silver market.”