Gold and silver rallies extend further

Gold has extended its rally today and reached the January top at $1611/oz. With the metal moving higher, despite the mentioned headwinds from other markets, it is difficult to see what at this stage can halt or pause the rally. Silver which suffered a deeper correction than gold last year has benefited from the ongoing focus on precious metals. Over half of silver demand comes from industrial applications and this is the main reason why it has struggled amid worries about the virus impact on global growth.

However with a lighter position than gold the continued rally has once again helped attract interest from traders looking for relative value. After finding support at $17.50/oz it has spent the past five days outperforming gold with the gold-silver ratio dropping back towards 87 (ounces of silver to one ounce of gold).

Silver may find some resistance ahead of $18.60/oz (dotted line) while gold, for lack of clear technical levels, could be heading towards the next round number at $1650/oz. However having reached resistance at $1611/oz it may pause first in order to gauge the level of support at these higher levels. A small correction could see it test the recent high at $1590/oz.

While total ETF holdings continue to reach new record highs hedge funds have maintained a net-long between 200,000 and 300,000 lots since last October. The latest breakout is likely to attract fresh momentum buying which will be added to the 229,369 lots (22.9 million ounces) they held during the latest reporting week to February 11. The speculative long in silver is significantly lower than gold and at 56,011 lots there is still some room to go before reaching the 2017 record at 99,000 lots.