Unlike most other assets, gold and silver managed to hold on to their gains in the first trading day of the year on Monday following a sharp reversal in the second half of the day for risk assets. Precious metals were initially supported by weakness for the dollar, but later came off their best levels as the safe haven greenback found support on the back of a sharp reversal for the stock markets. Still, both gold and silver closed the session higher and the metal have now extended their gains. Investors were spooked on Monday by the latest upsurge in virus cases, deaths, and new lockdowns for the UK. This morning, though, the prevailing trend seems to have resumed. Stocks have rebounded, gold and silver were on the rise and the dollar index was once again on the backfoot. Part of the reason behind the rebound is a direct result of UK Chancellor Rishi Sunak unveiling £4.6billion of bailouts for lockdown-stricken businesses. But with the vaccines being rolled out, a lot of investors are continuing to ignore the short-term impact of the latest lockdowns, and look forward to more normal times ahead.
The latest help from the UK government adds to the previous government stimulus and cheap central bank money flooding the financial markets. In 2020, risk assets and precious metals rallied sharply following the initial lockdowns in March, as governments and central banks unleased record stimulus packages and other measures to support the recovery. Their support meant that investors would largely shrug off further rounds of the virus resurgence and lockdowns. That’s exactly how the markets are behaving once again today, with both the pound and FTSE rebounding. Investors are thus continuing to buy the dips in stocks as well as traditional haven assets like gold and silver, all thanks to government and central bank support.
Compared to gold, silver is continuing to outperform
. The latter’s dual roles as a precious metal and an industrial material makes it more appealing during times when economic activity is expected to rebound. As well as other industrial uses, the ongoing drive towards cleaner energy means silver will also likely find support from the solar energy sector. China has promised to go carbon neutral by 2060, while many European countries have set themselves much tighter deadlines.
So, silver should remain supported from a macro point of view. From a technical perspective, the metal continues to make higher highs and higher lows after recently breaking above its short-term bearish trend line which thus ended months of side-ways consolidation. As things stand, silver could be heading to a new multi-year high above $30 in the not-too-distant future.
Source: ThinkMarkets and TradingView.com
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