Silver price gains 5% & gold 2% last week as Chinese holiday ends

New York (Feb 8)  Silver jumped above a key trendline that could be the start of a major rally for the precious metal last week and ended up five per cent. Gold benefited from the return of Chinese buyers to the Shanghai Gold Exchange at the close of the week with their Lunar New Year holiday over and prices finished up two percent.

Pathetic US jobs data

A second month of poor US unemployment data boosted hopes that the QE money printing program will be maintained, although its link with the gold price is far from clear. Gold prices sank for two-and-a-half years despite QE3. The Fed has confirmed its plans to end QE by October. Maybe that will be good for gold.

However, gold has been gaining support as a safe haven asset during the big sell-off in equities around the globe since the beginning of the year.

Gold and silver prices continued to advance on Thursday and Friday last week despite a rally of stocks off the 50-day moving average of the S&P 500, a major technical support in the market that has not yet been broken to confirm the downtrend is more than a cyclical correction.

The strength of the precious metals against this headwind can be considered significant. Wall Street is running low on rocket fuel and now relying on hot air.

Silver’s breakout

On the other hand, silver has broken out of its downtrend and this could well be an important turning point for the most volatile of precious metals. Silver outperforms gold when prices are moving up and does the reverse when prices are going down.

Among gold bugs the debate now is whether physical gold, gold stocks or silver will prove the biggest winner this year. ArabianMoney’s vote is for silver if only because the price slump of the past three years has been so severe it would have to rise 60 per cent to hit its 1980-high.

Buying what is most oversold and selling what is overbought usually works for investors, though in practice they usually do the reverse – like holding US stocks now. Silver is after all a commodity with inherent value and not a stock that can go to zero along with its earnings.

(Source:  ArabianMoney)