Silver Outperforms Gold, More to Come?

Gold prices rose slightly yesterday in line with the general market theme of dollar weakness that has been running through the markets. The yields are falling away from their range highs in the US and this has resulted in a weakness in the yields which has helped to soften the US dollar. But we believe that this is temporary and that it is only a matter of time before the dollar strength returns. The Fed is scheduled to meet next week and announce the first rate hike along with a guidance for further rate hikes in 2017 and we believe that this would be useful to bring back some strength to the dollar. With this in mind, we believe that gold prices are set to weaken further in the short and medium term and any rally in their prices should be viewed as an opportunity to short the commodity with tight stop losses. The focus today will be on the ECB today and how they deal with their QE program and though this may not directly affect the gold prices, a weakness in the euro could push funds into the dollar and help in building dollar strength.

Oil continues to consolidate and trade weakly in line with a correction that we have been mentioning over our last few forecasts. Oil prices continue to trade just above $50 and we believe that $49-$50 would serve as support which should prevent any further downward movement in the prices. The OPEC members are to meet the non-OPEC members within the next few days and get them to agree to the deal that the OPEC producers had thrashed out in their meeting and if the non-OPEC members also agree to the production cuts, as they are most likely to, we could see the next leg in the bull run for the oil prices. As we have mentioned before, we believe that the mid 50s would be the appropriate price for a barrel of oil and that is what we expect as the target in the next bull leg. Traders can use this correction as an opportunity to load their longs with a stop loss below $49 in anticipation of the next leg upwards.

Silver prices, as we have been mentioning over the last few forecasts, outperformed gold in pure ROI terms yesterday and though we believe that the prices would continue to be under pressure, we are of the opinion that in the medium term, silver would continue to outperform gold and traders would be advised to load longs in this commodity on any correction towards support.