As Gold Breaks New Frontier, Silver’s Believers Face New Dare

It’s hard for me to look away from oil, with crude at one of its most defining moments ever between landmark production cuts or a deeper price crash. Yet there are 30 other commodities in Investing.com’s universe of raw materials, and I’d be failing as a sectoral analyst if I didn’t point to those on a breakout or deserving of your attention. 

So today, my colleague Ellen R. Wald will bring you her incisive insights on oil while I dive into the world of precious metals, precisely silver. 

A lot has happened to silver since a host of forecasters projected highs of $16-$22 an ounce in 2020. Unfortunately, much of what happened was in the reverse to what they called. 

Silver Futures Weekly Chart

As the coronavirus crisis led to a liquidity crunch across markets, gold’s safe-haven status took on a different meaning, with investors turning the value they had built over time in the yellow metal into cash to cover losses in their equity and other portfolios. Silver got caught in that downdraft too.

From 11-Year Low To 3rd Straight Winning Week Now

Silver futures on New York’s COMEX struck an 11-year low of $11.74 on March 18. Prior to that, the white metal’s low was $10.37, reached in January 2009. 

But now, silver is headed for a third straight week of gains, albeit with some volatility. 

At the time of writing, COMEX’s front-month silver for May delivery was down just over 1% at $15.35. But on the week, it was up 5.4%, extending the cumulative gain of nearly 18% over two previous  weeks since its March 20 settlement of $12.35. 

To Todd “Bubba” Horwitz, chief market strategist at BubbaTrading.com, silver was at the pinnacle of a breakout that could add another $2 or more to its May COMEX contract.

“Silver has a solid rally,” Horwitz said. “There is a chance that $16 is next and it can continue.” 

Could Silver Get To $18?

May silver got to as high as $15.92 on Monday, prompting Horwitz to think it was has “real chance to test $18”.

But some are more cautious about silver’s upside, saying it had potential for more gains but in a path fraught with volatility.

“After the gold/silver ratio hit a staggering high in March, silver has started April well, relative to gold,” said Eli Tesfaye, senior market strategist for precious metals at RJO Futures in Chicago.

COMEX gold futures hit 2012 highs of $1,742.20 an ounce Tuesday, before settling at $1,664.80. The gold/silver ratio stands at 108:1 with that settlement. 

Tesfaye said like most metals, silver was caught in the middle of a demand/recession cycle anticipated over the next two quarters from the coronavirus crisis. 

Silver’s status as an industrial metal particularly made it vulnerable to any economic slowdown, and the Covid-19 recession could be one of the worst ever, analysts say. Used in jewellery and silver tableware, the white metal is also integral in the making of mirrors; dental, solder and brazing alloys; and electrical contacts and batteries.

And while it may be struggling to get beyond $16 now, silver has seen better times where it has traded more than three times current prices.

Futures of the metal topped a three-decade high of $49.52 in April 2011. 

The all-time peak for COMEX silver was $50.30 in January 1980. That would be worth $158 today, inflation-adjusted.

Will It Be Sideways Action Instead, And Not A Continued Rally?

Tesfaye said he didn’t anticipate a huge run-up in silver now, although he expected some technical levels to trigger an extended short term rally.

On the other hand, a shift in global recession sentiment could trigger another wave of selling that could pressure the metal below $12, Tesfaye commented, adding:

“Silver will be in sideways price action for the most part." 

"In my view, the sooner we can get a resolution or phase type of return to work for most sectors, the sooner you see the price of silver stabilizing” and the outcome would depend much on how the United States dealt with the Covid-19 pandemic, he said.