Gold and silver look for momentum on fresh dollar weakness

While rates and the dollar sets the overall direction, it is clear that the loss of momentum has been a major reasons why money managers at the beginning of March had cut bullish futures bets by 85% from the peak last February. During the past month, however, buyers have started to return and the recent rejection below $1680 helped trigger a 53% increase in the net long to 7.7 million ounces during the week to April 6.

Gold received a boost yesterday from a weaker dollar and favorably developments in the Treasury market where stronger-than-expected US CPI drove inflation expectations higher and real yields lower. We maintain a short-term neutral view on gold and while the twice rejection below $1680 points to a potential bottom it still needs confirmation, hence the focus on $1765.

Silver has been struggling to find traction following the early February spike and subsequent collapse. The brief spike above $30 that was inspired by the short squeeze in GameStop helped trigger a 11.2 million spike in silver-backed ETF holdings. While the price has since corrected by 15% investors have only sold back 9 million ounces, with some under-water positions still holding out for a recovery.

In order to find signs of renewed silver strength we watch the gold/silver ratio. After putting in several peaks around 70 ounces of silver to one ounce of gold, the ratio has reversed lower and as per the chart below some additional relative strength is likely to emerge on a break below the technical level at 68.50.