Silver: Gold's 'Poorer Cousin' Outperforms by Staying in the Shadows

It bears the ignominious tag of being the poorer cousin to gold. Yet, silver has relatively outperformed the more lustrous yellow metal over the past five months, gaining a net of almost 35% against gold’s return of just under 10%.

Charts now show that silver, alternatively called the white metal, could reach March peaks of above $27 an ounce if it continues with its upward trajectory with the longer term goal of hitting the $30 highs last seen in February 2021.

Charts by SKCharting.com, with data powered by Investing.com

Greg Harmon, the founder of Dragonfly Capital, a Charlotte, North Carolina-based investment banking firm, said in a blog run by bullion trader Kitco on Tuesday that silver could potentially extend its current rally, especially after bottoming at a two-year low of $17.65 in September.

Harmon noted that silver futures had run into resistance at between $24 and $25 on the New York Mercantile's Exchange and also faced a major barrier at $26.

However, if prices get above $30, the white metal's long-term target would be the $40 level that culminated in the record high of $49.56 in April 2011.

Adds Harmon:

"Silver has a lot of momentum, and we haven't seen it stall like gold; if it can get above $25, it could signal a long-term reversal. If silver gets to $30, there is not a whole lot stopping it from going higher."

While gold itself was experiencing one of its strongest bull runs since the summer 2020 phase that took it to record highs above $2,100 an ounce, its gap with silver — known as the gold-silver ratio — had not blown out this time. At the time of writing, the ratio — which measures how many ounces of silver one ounce of gold would buy — stood at 78:1, below the critical 80:1 mark or higher that often characterized the gold-silver relationship.

Fundamentally as well, silver appears to be at an inflection point over how much it could advance from China's dropping of its guard over the coronavirus pandemic.

In a late 2022 analysis on silver, Capital.com noted the potential for a surge in economic activity as Beijing transitions from its COVID-zero policy, resulting in "increased silver demand from solar panels, of which China still retains the overwhelming majority."

Silver is a key element in solar panels due to its usage in photovoltaic power, which drives some of the leading sources of renewable energy globally. With about 20 grams of silver being used in every solar panel, this continues to be a vital source of demand for the metal.

Capital.com noted that China's share of global solar panel production has risen from about 55% to around 84% in the last 12 years.

Silver is also used in batteries, photography, dentistry, semiconductors, and other industrial applications.

So, for traders, where are silver's immediate strengths and weaknesses?

Sunil Kumar Dixit, Chief Technical Strategist at SKCharting.com, says the spot price of silver shows it is on track to breaking current resistance at $24.55 if it stays above the December close of $23.96.

Adds Dixit:

“For the rally to continue, silver bulls need to defend the spot price’s $23.10 level.”

He said a bullish continuation emerges with the crossing over of spot silver’s 5-week Exponential Moving Average of $23.60 with the 100-week Simple Moving Average of $23.26.

A break below $23.10 will signal more decline toward the 50-week Exponential Moving Average of $21.85, Dixit said.

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As long as the metal remains trapped within the previous week’s $24.57 - $23.11 perimeter, traders were likely to remain undecided on direction, he said, adding that the previous week’s bearish Doji kept momentum under check.

“Breaking through $24.57 will indicate strengthening momentum, and if we take out $25.70, we can extend the upward move towards the next major resistance of $26.85.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.