A strong week for the energy sector with crude oil trading higher by 8% while natural gas surged by 17% on the outlook for cold weather and an unusually big weekly reduction in stocks. Brent crude oil meanwhile is marching toward resistance at $60/b, the 61.8% retracement of the 2018 peak to the 2020 low, driven by a tightening market on expectations that OPEC+ is committed to supporting further price gains by restraining global supplies even as demand outlook improves as the vaccine-led recovery in global mobility increases.
Silver’s go it alone rally, inspired by conspiracy theories and ill-informed traders in the group on Reddit, almost ended before it began. After failing to break above $30/oz, now a double top, the trade idea crumbled fast. But unfortunately not before having sucked 3,500 tons of new investments into exchange-traded funds, most of which are now under water.
Without strong support from gold, which instead drifted lower in response to a stronger dollar and rising bond yields, the rally was doomed to fail. Not least given the lack of fundamental reasons for the gold-silver ratio (Ticker: XAUXAG) moving to a seven-year low at this point in the cycle.
While premiums for silver coins and small bars due to strong retail demand has been rising, thereby forcing unfortunate buyers into paying a huge and potentially loss-making premium above the prevailing spot, the LBMA in London reported that one billion ounces or 28,350 tons of silver traded in the London spot market on Monday.
Despite the recent setback, we maintain a bullish view on precious metals but given the current focus on a post-pandemic growth sprint, demand for safe havens has faded.