Both precious metals are up for the sixth straight week, with gold trying to stablish a base around $1800 and silver $19.00. The metals continue to rise along with equity markets, suggesting investors continue to treat them as risk rather than haven assets.
Stocks have endured a rather volatile week with the indices slumping on Monday then rebounding sharply by mid-week, before falling again on Thursday. It will be a big week for tech earnings next week, so equities will remain in focus. Bank reports are mostly out of the way now and the numbers have been poor, but less so than expected as heightened volatility boosted their trading revenues in Q2.
Meanwhile, the latest macro pointers released this week were mixed, but overall better than expected including US retail sales and Chinese GDP. But China also reported a weaker retail sales number, suggesting Chinese consumers are feeling the economic pinch, which may mean lower jewellery demand for gold and silver.
However, investment demand should offset any weakness for jewellery purchases, due to ongoing economic uncertainty and, more to the point, a prolonged period of zero or sub-zero interest rates. What’s more, the US dollar remains out of favour despite bouncing here and there.
Thus, noninterest-bearing and buck-denominated gold and silver stand ready to benefit further. Silver, which is also an industrial material, could experience relatively higher demand compared with gold as the world economy recovers from the pandemic.
In the short-term, both metals are likely to benefit from momentum – as people like to buy when things are going up in value. Indeed, silver’s chart is looking quite constructive with the metal rising inside a bull channel steadily and holding above key support levels and moving averages:
Source: TradingView.com and ThinkMarkets
The key area that needs to hold now is around $18.85 and $18.95, formerly resistance. So far, the bulls are defending this zone quite nicely with the metal rebounding from around here this morning. A close in the positive territory will result in the formation of a hammer-like candle on the daily, which should then pave the way for more technical gains in early next week.
With prices making higher highs and higher lows, the path of least resistance remains to the up side and as such, I now think silver may be reaching for $20, after hitting my main objective at $19 as I had been banging on about it. I would drop my short-term bullish view if and when we observe a clear reversal pattern.