SILVER : Mixed Outlook

(Mon, 7 Dec 2020). While gold prices recently broke to their lowest levels since July, silver prices never cleared their September low. Ongoing weakness in the US Dollar, even as US Treasury yields creep higher, portends to silver prices withstanding significant downside through the end of the year.

SILVER PRICES CONTINUE TO CONSOLIDATE

Silver prices have seen less attention than gold prices in recent weeks (at least in financial media), in part because volatility hasn’t been as extreme: while gold prices recently broke to their lowest levels since July, silver prices never cleared their September low. In part, as is explained below, this divergence may be due to the perceived differences in economic utility for gold versus silver (or gold versus platinum, for that matter).

Ongoing weakness in the US Dollar, even as US Treasury yields creep higher, portends to silver prices withstanding significant downside through the end of the year. The triangle that’s formed in recent weeks may not produce a breakout in either direction, but it’s important for traders to keep their on the longer-term technical perspective in the face of other monotonous trading.

SILVER PRICE FUNDAMENTALS ARE EVOLVING, BUT ARE STRENGTHENING IN ONE MEANINGFUL WAY

The ebb and flow of US fiscal talks against the backdrop of weakening US economic data on one hand and coronavirus vaccine development progress on the other hand has provoked an evolution in the fundamentals underlying precious metals, silver prices included.

Unlike gold, silver is not just seen as a safe haven, but benefits more than its golden counterpart from renewed economic optimism; silver has greater utility in the real economy.Furthermore, with government deficits rising and interest rates staying low – much like the 2009 to 2011 window – now that the global economy is looking ahead to a period of significant growth post-pandemic, silver prices have a recent historical precedent to suggest that they are likely to lead gold prices for the foreseeable future.

SILVER PRICES AND SILVER VOLATILITY BACK IN SYNC

Both gold and silver are precious metals that typically enjoy a safe haven appeal during times of uncertainty in financial markets. While other asset classes don’t like increased volatility (signaling greater uncertainty around cash flows, dividends, coupon payments, etc.), precious metals tend to benefit from periods of higher volatility as uncertainty increases silver’s safe haven appeal.

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