June Comex gold futures (GCM25) hit a record high early last week of $3,509.90 an ounce but then promptly backed off to close Friday afternoon at $3,330.20 — down around $180 from last week’s peak. The major bull market run in gold is in serious jeopardy on a near-term basis. Meanwhile, the silver market (SIK25) is maintaining its price uptrend on the daily chart and last Friday hit a three-week high.
Gold Bulls Appear Exhausted but Silver Bulls Still Have Game
The gold market’s steep drop from last week’s record high suggests the yellow metal bulls are now tired and need to pause and regroup.
Improved risk appetite in the general marketplace last week, which rallied U.S. and global stock markets, was a bearish element for safe-haven gold. If U.S. and global stock markets can continue to recover in the near term, it’s likely that gold prices will not revisit last week’s high anytime soon. More severe turbulence in the U.S. and/or global stock markets would likely send gold higher to challenge last week’s record high, or even above.
The silver market’s resilience amid gold’s recent selloff is a sign of significant underlying price strength in silver. As a long-time metals market watcher, I was a bit surprised that silver did not post stronger price gains when gold was making its accelerated bull move that began in early April.
For a longer-term perspective, gold futures began scoring a series of record highs in the summer of 2020, during the height of the pandemic scare. In March 2020, silver prices began to rally from a low of $11.735 an ounce, basis nearby futures, to a 13-year high of $35.45 in March of this year. However, silver’s price trek north over the past five years has been a rocky one with large downside corrections along the way.
More Price Upside Likely for Silver
My bias is that the silver market has better legs to run on to higher prices. The main argument is that both gold and silver are safe-haven assets. While risk aversion in the general marketplace has receded, it’s highly unlikely that trader and investor risk appetite will become robust any time soon. The U.S. trade row with its major global counterparts, especially China, is very unlikely to be fully resolved any time soon.
A flare-up in global trade tensions, or other major geopolitical developments, could send both precious metals shooting higher. Savvy market participants have not overlooked the simmering friction between the U.S., Israel, and Iran over Iran’s developing nuclear program. Recent reports said Israel wants to attack Iran and take away its nuclear weapons capability sooner, but President Donald Trump want to negotiate more, hoping for a deal. However, Trump has said Iran cannot possess a nuclear weapon and it would be “very bad” for Iran if no deal is reached.
The Russia-Ukraine war also remains near the geopolitical front burner. The U.S. has so far been stymied in its attempts to broker a peace deal.
A key reason I believe silver has significantly more upside price potential than gold does is that silver prices are presently well below the record high of $50.36, basis nearby Comex futures, scored in January 1980. In April 2011, silver came close to a new record high, peaking out at $49.52 in April of that year. Conversely, gold prices in January 1980 hit a then-record high of $875.00 an ounce, basis nearby futures. Gold prices are presently well over $2,000 above that 1980 high. Silver bulls can argue that silver prices at present are a value buy, compared to gold, from a longer-term historical perspective.
Gold and Silver Traders Should Closely Monitor the U.S. Dollar Index
The U.S. Dollar Index ($DXY) is a basket of six major world currencies weighted against the greenback. It’s an important “outside market” that gold and silver traders track daily. The USDX hit a three-year low last week amid marketplace worries about the U.S. falling into an economic recession due to its aggressive trade tariffs. The depreciating dollar is a significantly bullish outside-market force that has kept price floors under the gold and silver markets.
If the USDX continues to trend down in the coming weeks and months, gold and silver prices will likely remain at elevated levels. But if the USDX rebounds and starts to move higher and sustains an uptrend, that would be a serious bearish weight on the precious metals markets.
Tell me what you think. Email me at jim@jimwyckoff.com
