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February
04
2022

Silver could be the primary market over gold ahead
Dave Hightower

Other than a slight downward tilt on the charts, the gold market lacks definitive sentiment this morning, and silver is clearly outperforming gold on the upside. On the other hand, we suspect higher Treasury yields overnight have increased resistance hanging over the gold market. In a minor supply-side negative, gold producer Centamin saw its quarterly gold production jump 58%, but its full-year output target remained within its range of expectations. Unfortunately for the bull camp, the gold market has yet to embrace and consistently benefit from the expanding inflation story line, with gold this morning showing very little reaction to a 30-year high in UK consumer prices. However, a moderate portion of the trade remains confident in the US Fed and other central banks’ capacity to control inflation through tightening policy and/or higher rates. Over the past four sessions, expectations for the number of US rate hikes this year have increased from three to four, and that has provided a lift to the Dollar Index. Therefore, the gold bulls are probably facing two sustainable bearish outside-market negatives, rising rates and a stronger dollar. In the near term, we see gold continuing to trade in sync with Treasury prices, especially as Fed dialogue contributes to ideas that a rate hike will come sooner rather. The bull camp should be disappointed with gold failing to benefit from another surge higher in crude oil prices this morning. Many traders feel the gains are accelerating and potentially entrenching inflation into the world economy. Unfortunately for the bull camp, the trade thinks the Fed has ultimate control over inflation and can stop the music when it feels the time is right. It has been rare for silver to dramatically outperform gold, but that is what is happening this week, in a sign that it could be waking from its multi-year slumber. Even the technical picture has shifted upward in silver with yesterday's sharp rally forged on a jump in trading volume to the highest level since November 26 and the market adding to those gains this morning. While we need more evidence, it is possible that silver has become a responsive physical commodity capable of drafting lift from surging oil prices. With the higher high overnight and the highest price since November 23, March Silver looks to be on track to regain $24.00 in the sessions ahead. 

MARKET IDEAS: A slight retrenchment in the dollar this morning, new highs in energy prices, and a 30-year high in UK inflation helps gold and silver track higher to start today. However, traders should monitor Treasury prices closely, especially with a 20-year bond auction scheduled for later today. Poor demand for the auction could result in another pulse higher in US interest rates, and that could unleash a wave of fresh selling in gold. Logical downside targeting in February Gold is seen at $1,800 and possibly down at $1,792 if US interest rates rise in the same measure as was seen to start the week. On the other hand, the silver market is showing signs of ongoing strength, and it could be tracking inflation despite the lack of inflation interest in the gold trade.

As a founding principal of The Hightower Report, Dave Hightower analyzes the energy, metals, equity index, currency & bond markets daily.

Dave has over 30 years experience in the commodity and financial futures industry. Before starting The Hightower Report, Dave was the Director of Research for the (then) largest commodity brokerage firm in the United States, Stotler & Company. Prior to this, Dave was one of the first paid full time stock index futures analysts and has since covered the stock market on a daily basis.

Dave has provided research interviews to CNN, Bloomberg Television, the Wall Street Journal, Futures Magazine and many other industry groups/publications. Dave has worked with regulatory agencies, exchanges and other industry players on a wide variety of research and trading projects. He also educates commercial traders in basic and advanced hedging techniques.

 

 

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