Silver up 11 percent in a week - what's going on?
Silver has now climbed almost 11 percent over the past five days in what has been the best run of performance since January. The rally kicked of last week at a time where the technical picture once again had just turned negative. What reversed this and in the process triggered a large amount of short covering and new buying, were the Chinese trade balance numbers which revealed a bigger than expected rise in imports of raw materials, including industrial metals.
Copper was the immediate beneficiary of this surprise jump in imports but silver soon followed due to its dual role as an investment vehicle and as an industrial metal. With the growth outlook for China and Europe stabilising, and data elsewhere also lending support, traders jumped in to take advantage of a silver price which was hovering close to 2010 levels and some 63 percent below its 2011 peak.
The rally also benefitted the price of gold which has moved back into neutral territory between 1300 and 1350. The chart below shows the price ratios between gold and silver and the Precious Group Metals of platinum and palladium. The clear winner over the past week has been silver followed by platinum, then gold and palladium in fourth place.
The much watched ratio between gold and silver has contracted to 61.6, meaning one ounce of gold can now be bought for 61.6 ounces of silver, compared with the July peak of 67.2 ounces. The change in the ratio shows how the growth story currently supports silver the most while simultaneously creating headwinds for gold because of the ongoing focus on Fed tapering and rising bond yields and equities.
The move in silver has nevertheless been strong enough once again to rattle those holding an outright bearish view on precious metals, especially gold and while "one swallow does not make a summer" the net-positive flows into gold exchange traded products since Thursday should be watched for signs of a change in investor sentiment.
Silver should find some resistance as we approach the 22 dollar per ounce level, also considering how far we traveled in such a short time while support should now be found down towards the July high at 20.60. Gold, meanwhile, has once again been driven more by short covering than actual new buying and for this to change a foothold above 1350 needs to be established.