Silver as well as gold are getting a boost this morning as stocks are once again weaker and a higher degree of risk aversion appears to be taking hold. The geopolitical landscape continues to be a large source of concern for investors and world markets, and some appear to be cashing their chips in at this point. This certainly has the potential to work in silver’s favor as investors seek opportunities to put cash to work outside of stocks. The U.S. dollar as well as U.S. treasury bonds also stand to potentially benefit from the flight to quality. A stronger dollar index is normally considered to be a bearish factor for precious metals, however, should more investors continue to rotate assets out of stocks and risk assets and into perceived safe-haven assets such as metals and treasuries, we could see precious metals rise along with the greenback.
Precious metals investors still seem a bit undecided, however, as silver yesterday fell below the $20 per ounce mark. The metal has reclaimed that level today as of this post, but one has to wonder why the metal still seems to be trending lower given all that is going on in the world currently. This $20 level would certainly appear to be a key level for silver, and a hold here could attract additional fresh buying which the market still appears to be lacking. If the metal is unable to hold current price levels, we could potentially see a dip down to the $19.50 level or even the $19 level. Again, anything is possible but it seems such a dip would be unlikely given the current backdrop. In addition, if the silver bulls cannot stage some type of meaningful rally given the current backdrop, then the underlying market fundamentals may have to be reexamined.
Interest rates continue to fall as bond prices continue to trend higher. In fact, the yield on the German Bobl dipped down to a record low of .28 percent. This would seem to be a good indication of the current state of risk aversion in the marketplace. This divergence between stocks and bonds is certainly worth paying attention to-and perhaps we are now seeing that divergence play out as stocks continue to soften.
Equity markets and general risk aversion will likely continue to be the main driver for silver and precious metals. In addition, should tensions continue to rise in any of the current and ongoing geopolitical conflicts such as Russia and Ukraine or Israel and Hamas, metals could potentially be bought as investors look to reallocate capital.