Silver to outperform Gold on improved global economy, says Bhavik Patel

Silver has risen twice as sharply as gold and so as a result, the gold/silver ratio has dropped to 76, its lowest level since the beginning of the month

Gold prices reversed losses and rallied as the focus has shifted to the US fiscal stimulus progress, more lockdowns, and the last Federal Reserve meeting of the year. The bullion has resistance at $1875 and it needs to break that level to gain ground. The metal has been unable tp breach this level since November. US 10-year bond real yields are back below -1.0 per cent, giving boost to precious metals. This dip in real yields is being driven by rising inflation expectations, leading to higher nominal yields.

There has been some progress on the US fiscal stimulus front as Congress continued negotiations. We believe gold has legs till $1875 and needs strong to break level of $1900. Currently, gold is seeing a pullback after it suffered losses last week. We will see more long positions being added above $1900. Vaccine rollout might stop next wave but could not help in this wave and therefore gold is rising as more countries are imposing lockdown. Currently the only threat for gold is equity market.

Silver markets continue to see a certain amount of resilience as every time we break below the $24 level, buyers are willing to step in and take advantage of cheap silver. Gold has recovered, but Silver has outperformed. The metal has risen twice as sharply as gold and so as a result, the gold/silver ratio has dropped to 76, its lowest level since the beginning of the month. Silver will continue to outperform gold as an improving global economy boosts the precious metals industrial demand. The flood of cheap money is likely to lift not only gold but also silver, which still has catch-up potential compared to gold. Biden wants to restructure the US economy in the direction of carbon neutrality and for this reason wants to push solar energy massively. The construction of 500 million solar panels is planned over the next five years and silver plays a very important role in solar panels. After telecom, maximum usage of silver will be in solar panels. Silver long positions saw weekly rise of 484 net contracts from the previous week.

Crude oil has seen good recovery and is trading at 9-month high on hopes of stimulus deal and softer US dollar. Limited increase in production from OPEC+ and vaccination drive will help in increasing the demand which will be beneficial for crude. However, there is a fear of oversupply as Baker Hughes' latest rig count report for the US showed highest rig additions since January coupled with Libya's continuous increase in production. US lawmakers have decided to split the US $908 billion stimulus package into two separate proposals, making it easier to strike at least a partial deal. Mass vaccine distribution will also play key role in increase fuel demand. Resistance for crude oil is near $48-$50 and it has been unable to break that level. We feel momentum on the upside is weakening as oscillators RSI is beginning to flat out so we would be cautious in long positions.

Natural Gas has recovered but without Alaska ridge, the duration of cold could be short. Given that fundamentals remain firmly in favor of the bulls, we urge patience and advise to go long once weather models confirm. Storage outlook is bullish but as long as confirmation is not there, we would recommend taking some profit in long NG and wait for either dip or confirmation for taking fresh long position even thought that position may come at higher price.

Recommendation:

Buy Lead | TGT: 164 | Stoploss: 158

Lead has taken support at its 20-DMA and has bounced back showing bulls in control as any dip is being bought into. RSI_14 has cooled down from 81 to 58 and is trading neutral to positive. We expect prices to test resistance of 164 and hence we recommend long position with expected target of 164 and stoploss of 158 onclosing basis.

Buy Silver | TGT: 66,000 |Stoploss: 64,200

Silver has taken support at its 20 and 50-DMA on daily scale. We have also seen cross over of short term moving average of 20 and 50-DMA with the metal forming bullish 'Marubozu' candlestick pattern. RSI is trading stronger around 60 with no divergence. We expect the ongoing upside momentum to continue till 66,000 and thus advise to buy at current level with stoploss of 64,200 closing basis.

==========================
Disclaimer: Bhavik Patel is Sr. Technical Analyst (Currencies/Commodities) at Tradebulls Securities. Views are personal.