Silver Is The Key To Gold Breaking 2016 Highs - Analyst
(Kitco News)- Investor interest in silver could be the missing ingredient needed to push gold prices through its recent four-month highs, according to one commodity analyst.
Andrew Hecht, the creator of the Hecht Commodity Report, said, in a commentary on Seeking Alpha, that silver's lackluster performance, compared to gold could be one reason why gold is struggling to break above last year's highs.
"Gold may be waiting for one last signal from its little brother before it takes off to the upside," he said.
Gold has recently benefited from a significantly weaker U.S. dollar, rising more than 7% since its recent lows see one-month ago. At the same time, silver has increased 8% during the same period. Many analysts see the latest price action as lackluster, because of its volatility. Historically, silver can significantly outperform gold in an uptrend. Vice-versa, silver also underperforms gold in a downtrend.
February gold futures last traded at $1,333.90 an ounce, relatively flat on the day; at the same time, March silver futures last traded at $17.025 an ounce, also relatively flat. Kitco.com shows the gold/silver ratio, remains near its recent multi-year highs at 78.46. It currently takes more than 78 ounces of silver to buy one ounce of gold. Analysts have noted that the ratio's historical average is around 64 points.
"The silver/gold ratio is close to the highest level since 1993 as $17.50 has proved a difficult price point to conquer for the precious metals. The current level of the price relationship should give gold bulls a reason to pause and curb their bullish enthusiasm," said Hecht.
While Hecht sees hurdles in the precious metals space in the near-term, he is confident that silver will eventually overtake gold.
"I believe that gold is heading for a test of the 2016 high, but it will be silver that validates the move over coming days and weeks. Silver is currently sitting at a price point that could turn out to be a launch pad for its price and the prices of gold and many other commodities," he said.
While silver continues to disappoint precious metals investors in the new year, there is still a lot of bullish sentiment in the marketplace. Many banks expect silver will outperform gold prices as it benefits from growing industrial demand as the global economy continues to grow.
Last week, the Silver Institute said that it sees positive fundamentals for the silver market in 2018 as demand grows and supply shrinks. The institute said that it expects silver supply to decline 2% last year for the second consecutive year.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.