The gold price has moved up by 4 per cent and back down so far this month, while silver spiked by 7 per cent before retreating. That has investors asking, did the election affect gold and silver? What does this mean for the rest of the year and going into 2021?
This article looks at the latest market developments and the outlook for gold and silver. In addition, you can scroll down for a video in which Capital.com’s chief market strategist, David Jones, reviews the recent movement on the markets using gold and silver chart analysis.
Gold and silver news: markets return to volatility after the US election
Gold climbed above $2,000 per ounce in August, an all-time high, then retreated to trade between $1,850-1,950 per ounce. The gold price after election results was initially higher, rising to the top of the range. The announcement of progress in the development of a Covid-19 vaccine pulled the market lower on November 9, but it has the potential to continue rebounding over the longer term.
A US dollar recovery is the biggest threat to a renewed gold rally. The Dollar Index (DXY) – which measures the dollar against a basket of global currencies – has fallen by 10 per cent since the March highs, pushing up precious metal prices. The dollar could be due for an uptick after such a strong decline, but it remains in a downward trend for the time being because of the impact of the Covid-19 pandemic on US economic policy. Additional stimulus expected from the Joe Biden administration early next year is likely to weigh on the dollar in 2021, offering further support for gold.
The next resistance level for gold is the September 16 high of $1,975 per ounce, followed by $2,015 per ounce and $2,075 per ounce – bringing it back to the all-time high. There is support at the November 4 low of $1,880, then $1,848, and the psychological barrier of $1,800 per ounce.
Technical gold price analysis shows that the Bollinger bands suggest scope for a pullback on gold and the relative strength index (RSI) was overbought, but selloffs in the market are opportunities to buy. The moving average convergence divergence (MACD) gave a buy signal after the election and the market remains in an upward trend for the medium term.
In the meantime, silver reached its highest level since 2013 in August, rising above $29 per ounce, then dropped back to trade around $23-25 per ounce. The silver price after election results followed the gold market higher before retreating on the vaccine news. The RSI approached overbought and the MACD showed a buy signal after the election. The upward trend remains intact, with the market making higher highs and lower lows since the election.
Silver is likely to find some support from rising industrial production in China, as unlike gold, a large proportion of the metal is used in physical applications rather than investment. Silver mining has been disrupted by Covid-19 lockdowns, tightening supply during the year.
Silver technical analysis shows that the next resistance level is the September 15 high of $27.60 per ounce, the seven-year high of $29.85 set in August, and the $30 per ounce psychological level. On the downside, there is support at the $24.15 low from November 4, then $22.80 and $21.65 per ounce.
Check out this video in which Capital.com’s chief market strategist, David Jones, uses technical analysis to set up suggested silver and gold trades.
Which metal to trade now: short-term analyst forecasts
Analysts expect that precious metals could come under pressure in the short term, but they remain bullish on the medium-to-long term outlook for future gold and silver prices.
The gold/silver ratio – the number of ounces of silver needed to buy one ounce of gold – dropped from a record high of 114.77 in April to 68.99 in August and has slipped to around 76 currently from 79.50 in October. That lower level could indicate a period of outperformance for silver against gold, taking the ratio back towards 70, according to Ole Hansen, an analyst at Denmark’s Saxo Bank.
Gold is expected to remain the focus for investors. Silver typically moves in the same direction as gold, although thinner liquidity tends to result in rapid price moves.
“Real rates should continue on their downward trajectory and ultimately continue to fuel a bull market in gold. But, with that said, a reactive rather than proactive Fed is keeping the door open for the pain trade to grow in the near-term, as we enter into an uncertainty vacuum into the December meeting,” analysts at TD Securities said.
Samuel Burman, an analyst at Capital Economics said: “Investors sold safe-haven assets, such as gold, in the wake of positive news about the development of a vaccine. If it looks as though there will be a rapid recovery in economic activity due to the vaccine, there will probably be some further selling of gold-backed ETFs.”
However, Burman added that over the longer term, gold prices are likely to hold up: “While the positive developments in finding an effective vaccine against Covid-19 have boosted investor risk appetite, we still think that gold prices will remain high in the year ahead.
US-based Citibank is more bullish with its gold price forecast, setting a three-month price target of $2,200 per ounce and a six-to-12 month target of $2,400 per ounce. Its 2021 base case forecast is $2,275 per ounce.
Analysts at Heraeus Precious Metals noted: “A worsening pandemic situation will mean a weaker economy and that seems to have triggered selling in the financial markets. Gold was not spared from the sell-off. The gold price has had a strong inverse correlation with US bond yields and real interest rates which have begun to rise. Short term, the price could fall further but gold’s safe-haven status should provide some support.”
They also added that they believe “in the near term, silver is likely to underperform gold while the prices are declining” because of downward pressure on global industrial demand for silver.
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