(KItco News) – Gold’s record-setting runup in price has made many investors very happy over the last couple of weeks, with the yellow metal setting new all-time highs again and again as it climbed above $2,190 per ounce. But, one subset of precious metals investors are still waiting for their ship to come in.
To the surprise of many, even amid gold’s sustained strength, silver has yet to break out of its doldrums. The gray metal recently lost its place as the eighth-largest asset by market cap to Bitcoin, which has outperformed it even more dramatically than gold.
Nicky Shiels, metals strategist at MKS PAMP, is one of the sector experts left puzzled by silver’s relatively poor performance.
“The average Silver price on past Gold peak days is ~$28. Even more so, the average Gold/Silver ratio is $67.60 (22% below current levels),” she said in a recent X post. “In other words, at $2170 Gold prices, Silver should be over $32/oz! Just sayin’.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, told Kitco News that the reason why silver is bucking its historical trend may be because, unlike those previous highs, the demand drivers for gold are narrow and unique to the yellow metal.
He said that the current gold rally is running on sovereign purchases. “A lot of central bank buying, not only by [China], but by others to prop up their currencies,” he said.
Lusk said the fact that gold demand is primarily physical rather than investment-driven, and governments rather than ETFs and hedge funds are the major buyers, limits the secondary effects that have historically benefited silver prices in gold’s wake.
“There’s no demand for the physical [metal],”he said. “It’s been a laggard, it’s been rangebound. We’ve sold it at $25 to $26, and they buy it down at $22, $22.50.”
Lusk said gold’s strength is still providing a solid floor for silver prices, but what it isn’t doing is providing any upside momentum. “They don’t want to sell it off because with gold at these levels, above $2,000 an ounce, you’re not going to fall much below $22, $21, is what the market’s telling us,” he said. “But unless gold goes to $2,500, this thing’s going to have a hard time hitting $30, if not $25.”
Lusk pointed out that in the past, when the outperformance of silver does happen, it’s because the investment community first jumps into gold, and then the same investors jump into silver for that big follow-up move. In this case, market participants recognize that the gold rally is not being driven by the investment community, so there’s no real reason for silver to be following gold higher.
“That can change,” he said. “But until you take out some upper levels here, and start having moves with some conviction, I think silver is going to need a geopolitical [00:15:00] play.”
“Silver is barely positive for the year,” he added. “Gold is up five percent right now.”
Kevin Grady, president of Phoenix Futures and Options, agreed with the theory that the current gold rally is largely the result of central banks buying physical gold. “I think that it’s a definite driver in the market,” he told Kitco News in an interview.
But Grady also sees strong interest from retail traders who are reacting to the technical levels. “Obviously, the price action attracts trend traders,” he said. “People that are trend followers, they’re attracted by this. So I think the central bank buying did come in, but the trend followers exacerbated this move.”
Grady said that when you see fund buying in metals, it will show up in both the gold and silver prices, and that will provide confirmation that now is the time to buy in. “It’s a good sign, when you watch it as a trader, when you start seeing both metals take off around the same time,” he said. “When it’s funds that are coming and buying those things, that’s the way they do that.”
He said this rally to date is specific to gold. “I think that it does point to the fact that central banks are the driver here,” he said, “and I don’t think they’re buying silver in tandem.”
“I think that this is just primarily just a gold move.”
But patient silver stackers should be rewarded soon, according to BadCharts.com technical analyst Kevin Wadsworth.
SILVER – Who’s been accumulating below $2000 gold & $25 Silver? Long-term stackers about to be rewarded as shorter term trading resistance lines are overcome – @KinesisMonetary accounts moving up nicely with #gold/#silver/#Bitcoin/#crypto pic.twitter.com/58gKenIZOY
— Northstar (@NorthstarCharts) March 13, 2024
Both precious metals retreated in the face of a hotter-than-expected PPI report on Thursday morning. At the time of writing, spot gold last traded at $2,164.03 per ounce, down 0.63% on the day, while spot silver was at $24.828 for a loss of 0.66% on the session.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.