Are Silver bulls outperforming Gold?

July 17, 2020 15:30

Silver bulls outperforming Gold

While Gold broke above 1,800 USD last week and closed at its highest levels since 2011, making a stint up to and probably even above its current all-time highs around 1,920 USD in the near-term even more likely, Silver took off as well, but only marked new yearly highs, trades significantly below its 2019 yearly highs around 19.70 USD.

But, this might change soon and in our opinion, Silver has some serious over-performance potential compared to the yellow metal.

Fundamentally, the environment for precious metals like Gold and Silver is favourable

First of all, let's have a look at the fundamental side: the first paragraph might let come you to the conclusion that we are sceptical for Gold. That's definitely not the case. In fact, we consider the latest developments in Gold in comparison to those at the fundamental landscape very positive not only for Gold, but for precious metals in general.

Fundamentally, the Citi Economic Surprise Index (an index that reflects the percentage difference between expected and actual economic data) rose to a new all-time high over the course of the last weeks or to put it differently: the US economic indications released since May presented themselves far better than expected by market participants.

While this should actually cause US interest rates to rise under normal circumstances (since it makes it more likely that the US central bank FED will reduce her current aggressive monetary policy stance) and thus bring Gold respectively precious metals (and thus Silver) under pressure, Gold and Silver both pushed to new yearly highs.

One reason is likely to be found in the latest developments related to the coronavirus in the US and the increasing number of infections in the USA, especially in Texas and Florida, which together are responsible for over 20% of annual US GDP.

That said, various market participants seem to anticipate the potential negative impact on the US economy which will be countered with more fiscal stimulus by the US government, financed by freshly printed USD by the FED.

Why does Silver have over-performance potential, and how can we trade it?

While we consider Gold to have a realistic target around 2,000 USD, Silver can realistically see a deeper run beyond 20 USD.

We come to this conclusion looking at the Gold/Silver ratio, currently trading around 96.60, equal to the statement that Gold trades 96.6 times higher than Silver.

We realistically assume that the Gold/Silver ratio has further corrective potential as low as 82.00 to 85.00.

Assuming that we expect to rise up to 2,000 USD such a move would equal, given a Gold/Silver ratio of 85.00 a Silver price around 2,000 / 85.00 = 23.50 USD and thus (unleveraged) potential of more than 20% compared to (unleveraged) upside potential in Gold of around 10%.

Technically we consider the picture to darken on H4 with a drop below 17.50, delivering a risk-reward ratio of around 1 to 2:

Silver CFD daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on Silver CFD chart (between April 2, 2019, to July 9, 2020). Accessed: July 9, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015 the value of Silver fell by 12.8%, in 2016 it increased by 13.0%, in 2017 it increased by 6.4%, in 2018, it fell by 10.0%, in 2016 it increased by 15.7%, meaning that after five years, it was up by 13.5%.


Discover the world's #1 multi-asset platform

Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!

Download MetaTrader 5 and begin trading today!

Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
  7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
  8. The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.
Avatar-Admirals
Admirals
An all-in-one solution for spending, investing, and managing your money

More than a broker, Admirals is a financial hub, offering a wide range of financial products and services. We make it possible to approach personal finance through an all-in-one solution for investing, spending, and managing money.