Gold Rally Could Faze Out Soon, but Silver's Is Just Beginning

 | Apr 08, 2024 19:50

  • Despite a stronger US jobs report, gold and silver prices surged to new highs, driven by safe-haven demand amidst geopolitical tensions.

  • Silver's breakout above key resistance levels fueled last week's rally, hinting at further potential gains.

  • Gold's overbought conditions may prompt profit-taking, but short-term support levels suggest potential for consolidation around current highs.

    • There was no further escalation in the conflict between Iran and Israel at the weekend, which saw crude oil and gold prices drop in early Asia trade. But the precious metal’s dip was quickly bought, leading to another rise to a record high of over $2350.

    It will be interesting to see whether the metal will be able to hold onto its gains at these extreme overbought levels without staging a correction first. Gold investors have also been ignoring the strength of US data on the bond market.

    But as yields on government debt ascend, the opportunity cost of holding gold continues to rise from a yield’s perspective, given that the metal is a zero-interest-bearing asset. The risk of a correction is therefore rising.

    h2 Gold again disregards rising yields to hit fresh record/h2

    Precious metals rallied even after the release of a stronger US jobs report on Friday which triggered another hawkish repricing in the bond market.

    Once again, gold and silver traders ignored the rise in Treasury yields as investors trimmed bets on a rate cut in June, and the chances of three Fed reductions this year fell.

    Gold rallied around $40 to hit a new record high and silver extended its weekly advance to around 10% before both metals added more in early Monday trade ahead of the publication of US CPI in the week ahead.

    Friday's robust US jobs report came as a surprise with a headline print of more than 300K. Consequently, the likelihood of a rate cut in June dropped to below 60%, causing bond yields and the US dollar to rise.

    However, these gains were short-lived as the European trading session progressed. Investors likely shifted their focus to the upcoming week, anticipating inflation data.

    While stock markets were recovering a significant portion of the losses experienced on Thursday, the demand for safe-haven assets amid the geopolitical tensions in the Middle East propelled gold to a new record high.

    Additionally, crude oil reached a new peak for the year, with WTI touching $87.00 and Brent reaching $91.00, before dropping back on Monday as investors took profit.

    After the release of a stronger US jobs report on Friday, which prompted another hawkish reassessment in the bond market, precious metals continued to surge.

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    Gold soared approximately $40 to establish a new all-time high, while silver maintained its upward momentum, registering a weekly gain of around 10%.

    Both metals continued their ascent in early Monday trading, ahead of the release of US CPI data later in the week.

    h2 Gold and silver technical analysis and trade ideas/h2

    Both precious metals have been in demand, particularly gold, essentially because of years of high inflation chipping away at the value of fiat currencies, which is the same reason why Bitcoin has also been hitting record levels.

    Up until a couple of weeks ago, silver wasn’t finding much love. But stronger industrial data from China earlier in the week pointed to stronger demand for industrial materials like copper and silver.

    • Silver stages big breakout

    Silver’s big rally last week was also fuelled by a technical breakout above key resistance in the $25 area, drawing in momentum traders who had been taking advantage of the other precious metal – gold – in recent weeks.

    But at these levels, both metals appear a little overbought and a bit of a pullback should not come as a surprise.

    That said, the big breakout in silver means traders will be happy to buy the dips moving forward. I am expecting to see more gains for silver this year, particularly because the grey metal has not even reached the highs of its most recent years around $30, let alone its record peak of near $50 that it had hit in 2011.