(Kitco News) – The growing divergence between gold and silver continues to attract new market attention, but according to one analyst, there are specific bullish factors driving goldgold prices, which should ultimately provide some support for silver.
In her latest report, Nicky Shiels, head of metals strategy at MKS PAMP, described the sentiment in the precious metals market as primarily gold-focused.
The comments come as gold prices have verged on a technical bull market with prices recently up nearly 20% from their November two-year lows. Shiels noted that the pullback in gold has been shallow.
Meanwhile, silver, which outperformed in November and December, has stalled, with prices treading water around $24 an ounce.
February gold futures last traded at $1,926.30 an ounce, down 0.84% on the day. At the same time, March silver futures last traded at $27.060 an ounce, up 0.50% on the day.
Gold’s strong start to 2023 has pushed the gold/silver ratio off its recent one-year lows and is currently trading back above 80 points. It now takes more than eighty ounces of silver to equal one ounce of gold. The historical average for the ratio is around 60.
“If one told any generalist gold was up $300+ in 3 months, most would expect silver at $30 ($25 minimum). However, perhaps it isn’t what’s wrong with silver but more what’s ‘right’ with gold,” she wrote in her note.
Shiels noted that the persistent inflation threat, ongoing volatility in the crypto market, geopolitical uncertainty, including the new debate in U.S. Congress over the debt ceiling and potential default, are all specific supportive factors for gold.
As to where gold goes from here, Shiels said the precious metal still has room to move higher. She added that this is the quietest bull market rally the market has seen in a long time. She said that the market is even close to being “frothy.”
“There are plenty calling out golds overextension and it’s clearly overbought on the short-term technical; however, 1) that view is consensus, urggh and 2) it may be the case that, like in steady bull markets, it doesn’t have to correct lower to work off overbought conditions, but just consolidate before relaunching,” she wrote.
Although next week’s Federal Reserve monetary policy decision poses a risk for gold, Shiels said that she expects the market to overcome the wall of worry. Currently, markets have all but priced in a 25 basis point hike next week, which is a significantly slower pace compared to the Federal Reserve’s last four 75 basis point moves.
“Although it really should be non-event with 25bp priced in for Feb and really, who cares about whether there is another 25bp in March or not when gold‘s overcome 4x 75bp super-sized hikes in 2022,” she said. “Context is everything, but its still in Golds DNA to worry about most FOMCs.”
Looking ahead, Shiels said that she expects gold prices to grind higher as she believes this is more than just a momentum trade.
“The opportunity is not in a gold correction, but in silver & platinum playing catchup (in what could get messy given liquidity constraints), which is only more likely after the FOMC and Chinas return,” she said.
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