- Silver recorded a gain of 24% in May, the metal’s best month in nine years
- The gold-silver ratio turned down from over 120 to around 95
- However, silver’s rally ran into trouble around the long-term resistance of $19
Silver sparkled in May, adding a solid gain of about 24%. It was the precious metal’s best monthly performance over nine years, as it played catch up with richer cousin gold amidst a macroeconomic environment strewn with risk-off factors. July silver futures closed May at $18.499 per ounce.
Adding luster to silver’s shine was the global trend towards a re-opening of economies after economically back-breaking lockdowns triggered by the COVID-19 outbreak and the prospect of a return of industrial demand.
However, silver traders may like to take into account the metal’s long-term resistance around $19.
Precious metals and enduring tailwinds
The precious metals complex is getting an uplift from geopolitical tensions such as the nascent U.S.-China cold war over COVID and the tensions over Hong Kong.
Investors also are unable to shake off the premonitions of a second virus outbreak, and longer-term, the economic effects of massive global stimulus and monetary debasement.
The risk of COVID-II was echoed by Federal Reserve Chairman Jerome Powell: “I would worry almost more that a second outbreak would undermine confidence,” and lead to a slower and weaker recovery, he said.
Meanwhile, the U.S. dollar index has broken down sharply out of a trading range, and dollar weakness is positive for gold and silver.
Gold-silver ratio
Silver’s May leap may also have its underpinnings in the mean reversion of the gold-silver price. While gold put on a sedate 3.4% in May, silver massively outperformed with a nearly 24% gain.
From a high above 120 in March, the gold-silver ratio is down to 95 levels after silver’s huge rally. This is a usual script for the white metal. It normally follows late in gold’s bullish track but then zooms higher, much faster.
Silver momentum and technicals
This seemingly pivotal change in silver’s momentum, which has all but recouped most of the metal’s losses from COVID, also places it near the top of a long-term rectangle pattern. This rectangle has a lower (support) line at $13-14 and a top (resistance) line at $19-20.
So long as it oscillates within this range, silver is likely to face bouts of volatility.
However, physical supplies of silver are likely to resume after mines emerge from lockdown.
Physical demand, however, is another matter. It is not known when it will resurface in key consuming countries such as India whose economy is yet to recover from the debilitating effects of an extended lockdown. Even China has put on hold its estimates of GDP for the current year due to the pandemic.
Silver already faced headwinds around the $19 mark and is now looking to break $18. There could be a further weakness on the cards.