20 October 2016
Silver has outperformed gold so far this year, with Chinese buyers driving the rally. Photo: Reuters
Silver has outperformed gold so far this year, with Chinese buyers driving the rally. Photo: Reuters

Silver may gain further after outperforming gold

London silver price soared to a two-year high on Monday. The metal surged more than 7 percent in Asian trading hours, crossing the US$21 per ounce mark for the first time in two years. It marks a jump of over 15 percent from the level on the day of the Brexit vote.

Some analysts had speculated that the price spike was mainly due to Chinese buying.

Silver has gained 49 percent in year-to-date as of July 4, making it the best performing precious metal this year. In comparison, gold is up 27.5 percent.

Following the Monday surge, silver retreated back to US$19.52 on Tuesday, down 7.5 percent from the peak of the previous day.

Technical charts suggest that the metal has been overbought, and that it is set to go through some correction in the short term. The support level is around US$18.8 to US$19.5.

The 9-month and 25-month moving average is around US$16.08 and US$16.28 respectively.

Despite some potential correction, technical analysis shows that the medium and long-term price outlook for silver remains encouraging.

The resistance level is around US$20.4 or US$21.1. After that the 100-month moving average of US$21.6 will be the next resistance level. For the medium term, the target level is at US$27.32.

In contrast, London gold price once rose to US$1,357.6 per ounce on Monday, but failed to break the recent high of US$1,358.2 seen on June 24. Lagging behind silver, the gold/silver ratio dropped to 66 on Monday, the lowest level since August 2014.

Gold and silver both moved south on Tuesday, but the gold price fall was less dramatic than that of silver. It once tumbled to US$1,338 during European trading hours, and has now stabilized at US$1,345.

The holdings of the world’s largest gold-backed exchange traded fund, SPDR Gold Shares, were up by 3.9 metric tons to 953.91 tons, the highest since July 2013. SPDR Gold reported an inflow of 308 metric ton in the first half of this year, marking the biggest half-year increase in seven years.

Technical charts show gold might retreat to US$1,319 or even US$1,308 in the short term, while the resistance level is around US$1,350.

On the currency front, the euro is likely to weaken further against the US dollar. The 100-day moving average of 1.123 could be a short-term resistance level, and it might tumble to 1.109 or even 1.082.

Standard & Poor’s has downgraded the credit rating of the European Union to AA from AA+, and set the outlook as stable. The ratings agency said it reassessed its outlook after the Brexit vote.

Elsewhere, the Aussie dollar has suffered from heavy sell-off after elections in Australia over the weekend were too close to call.

The political uncertainty, together with growing doubts about the nation’s “AAA” credit rating, has weighed on the currency. On Monday, the Aussie dollar once dropped to 0.7433 against the greenback.

This article appeared in the Hong Kong Economic Journal on July 6.

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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