1/ The Year Belongs to the Precious Metals
2/ Strong Correlation Despite Different Factors Influencing the Demand
3/ Relative Strength Analysis Hints at Resilient Silver (XAGUSD)
4/ Silver to Follow Gold Breakout?
5/ What to Expect with Silver (XAGUSD)?
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1/
The Year Belongs to the Precious Metals
It would not be incorrect to say that so far the year that has gone by has favored the precious metals. If we compare them as an asset class with Equities, commodities have largely outperformed the Equities on a YTD basis. If we look at Relative Comparison, Silver (XAGUSD) has been the best relative performer. It has returned strong returns of 19.11% on Year-to-Date (YTD) basis while Gold (XAUUSD) has returned 14.61%. Crude Oil, on the other hand, has relatively outperformed just like Equities. It has returned 9.09%, just a notch below SPX (+10.12%).
2/
Strong Correlation Despite Different Factors Influencing the Demand
Courtesy of StockCharts.com
It is a no-brainer when we discuss the correlation between two precious metals; Gold, and Silver.
The demand for gold and silver is influenced by several factors, albeit with distinctions arising from their unique attributes and market perceptions. Gold is often sought after as a store of value and a hedge against economic uncertainties and inflation. Therefore, factors affecting the demand for gold typically include macroeconomic indicators such as interest rates, inflation rates, and geopolitical tensions. Additionally, consumer sentiment and investor behavior, particularly during times of economic instability, play significant roles in driving gold demand.
On the other hand, silver exhibits dual characteristics as both a precious metal and an industrial commodity. Consequently, the factors influencing silver demand encompass a broader spectrum. Industrial applications, including electronics, solar panels, and medical equipment, heavily influence silver demand. Economic growth, technological advancements, and manufacturing activities directly impact the industrial demand for silver. Moreover, silver's affordability relative to gold makes it more accessible for retail investors and jewelry consumers, further diversifying the factors influencing its demand.
3/
Relative Strength Analysis Hints at Resilient Silver (XAGUSD)
Courtesy of StockCharts.com
Despite Silver (XAGUSD)’s relative outperformance, the relative strength has just begun to improve. As evident from the above chart, the Relative Strength Line (RS Line) of Silver (XAGUSD) against Gold (XAUUSD) has just started to improve. A glance at the RS line of Silver when compared against Gold shows that it has arrested its decline and is seen attempting to move higher. It has also crossed above its 50-period MA.
A simple interpretation of this picture is that the RS line may continue to rise; this would mean Silver would continue to relatively outperform Gold over the coming weeks.
4/
Silver To Follow Gold Breakout?
When one says that Silver has outperformed Gold and Equities, there are enough reasons to believe that this relative outperformance may continue. A simple look at the weekly chart shows on the weekly charts, Gold has already staged a breakout a couple of weeks back when it crossed above the 2070 level. That being said, Silver is yet to achieve such a breakout. Given the strong positive correlation and improving Relative Strength, Silver achieving this breakout can be just a matter of time.
5/
What to Expect with Silver (XAGUSD)?
Courtesy of StockCharts.com
Going by the historical instances, the crossovers of 10-period MA over 40-period MA have been quite bullish for both Gold and Silver. In this case, Silver’s 10-period MA has already crossed above 40-period MA a couple of weeks ago. The weekly MACD trades above its signal line and PPO stays positive. Silver is seen retesting its multi-month resistance levels; it has consistently taken support at 10-aperiod MA during corrective retracements. Given the improvement in its Relative Strength and strong positive correlation against Gold and with Gold already having achieved a breakout, a similar breakout in Silver cannot be ruled out. If the prices resolve on the anticipated lines, then this precious metal has a brighter chance of testing 30 and 33.85 levels over the coming weeks. By and large, both precious metals, Silver and Gold are likely to relatively outperform the equities.
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Originally posted 13th May 2024
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