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Could silver lead precious metals comeback?

Fawad Razaqzada Fawad Razaqzada 03/03/2021
Could silver lead precious metals comeback? Could silver lead precious metals comeback?
Could silver lead precious metals comeback? Fawad Razaqzada
Gold and silver fell further this morning, once again ignoring everything else but those bond yields. As yields continue to rise so do the opportunity cost of holding non-interest-bearing assets like gold. Gold in particular needs bond yields to start dropping back or the dollar to weaken sharply for it to find some support. The weak ISM services PMI has caused the dollar to ease back, so let’s see if gold will catch a bid later on in the session. Silver on the other hand is also an industrial metal, making it more sensitive to the economy. With ongoing expectations over a strong global economic rebound driving other commodities higher, silver is likely to outperform gold if those expectations are met. This means that it will either fall at a slower pace than gold, or rise at faster clip.

Weak service PMI could hurt dollar

The services sector is the largest in the US economy and with PMI dropping by 3.4 points in February is not something the dollar bulls would have liked to see. In fact, looking at the details of the report makes for a grim picture.
 
  • Headline PMI: 55.3 vs 58.7 expected and 58.7
  • Business activity fell to 55.5 vs 59.9 previous
  • Employment fell to 52.7 vs 55.2 previous
  • New orders fell to 51.9 vs 61.8 previous
  • Prices paid rose to 71.8 vs 64.2 previous
 
The key takeaway points from the details of the PMI report are that employment rose but slowly, while there are more signs of inflation with prices paid rising. Overall, it was a weak report and this should help slow the rise in bond yields.

Yields rally likely to slow

Indeed, the focus remains firmly fixated on yields. The last two weeks of February saw stocks fall back from record highs as bond yields jumped in anticipation of a strong economic rebound and reduction in the pace of asset purchases by central banks. However, other risk assets such as crude oil pushed higher on expectations of stronger demand. As we head towards the latter parts of this first quarter, rising yields vs. optimism about re-opening of major economies will be the key theme for the markets.

I think yields will soon stop going higher as central banks are still printing at full throttle and there is the possibility that the world economy will not rebound as fast as some expect. This means that loose central bank policy will be here for a long time.

Silver outlook bullish
 
As such, I still expect precious metals will recover but I am more bullish on silver than gold because with the world recovery demand for industrial materials should rise proportionally. In the long term, silver is likely to find significant demand from the renewable energy sector (solar panels) and electric vehicles.

Silver at critical juncture
 
Obviously timing is everything but with silver testing THIS bullish trend line and key support around $26, it is possible that the metal could rebound from here:

Silver
Source: ThinkMarkets and TradingView.com

A nice hammer-like candle was already printed here on Tuesday, but we need to see this level hold today and for price to make a short-term higher high to provide more conviction.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
×
Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
×
Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
×
Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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