Silver Price Is On Fire…But For How Long?
New York (July 2) Silver bulls are on a roll this week, with prices hitting another 22-month high near the $20 level. However, investors are concerned as to how much longer this rally could last.
Despite the metal's volatile nature, analysts are still sanguine on silver's outlook.
"I think the gold rally was Brexit related and the silver rally is a function of the cure to Brexit," said Vince Lanci of Echobay Partners. "I think CME does not want bubble behavior, and will be quick to raise margins like it did with gold. I welcome the reduction in volatility that would cause and happily buy dips from margin hikes."
Although equity markets have calmed down since last week’s surprise Brexit vote, gold and silver continue to find support. As of Friday, August Comex gold futures were trading $18.70 higher at $1,339.30 an ounce, while September Silver rallied 5.76% to $19.695 an ounce. Since June 23, the day of the historic U.K. referendum, silver has rallied nearly 13%.
“Silver became self-aware today at 12:15 and decided to take over the Precious Metals Complex,” added Lanci quoting a friend.
According to the veteran trader, whenever a rally in precious metals starts with gold, it often ends in silver, so it is important to keep an eye on the gold-to-silver ratio.
“Gold is too expensive on a relative value basis so people with less cash flow into silver,” he explained. “If the silver-gold ratio goes under 70 for any period of time, you may see another blow off rally to $30.” On Friday, the gold-silver ratio stood at 68.04
Phil Streible, senior market strategist for RJO Futures, also focused his attention on the gold-silver ratio and said he expects silver to continue outperforming gold throughout the rest of the year.
“Silver futures over the past month have outperformed all other commodities up over 23% and are making serious gains on the price of gold driving the ratio below 69 to 1,” he told Kitco News.
“Safe-haven demand and declining interest rates have been the most attractive feature while expectations for a pickup in industrial demand remain muted. The dollar index strength over the past week is finally taking a breather and having a small correction from overbought territory,” he added.
Streible’s year-end target for silver stands at $21 an ounce.
“[Silver] doesn’t have feelings. It has only one mission, to terminate those who do not believe in it,” Lanci said.