Is the sky the limit for gold and silver?
Gold is trading at fresh record highs today while silver is up by ~6% in a push above $24 as both commodities see a roaring start to the week.
The case underpinning the move higher has been laid bare for all to see since the start of the virus crisis but the parabolic move in the past week is gathering more attention as the pace of gains is starting to be a little too exuberant perhaps.
The case for gold
It is going to be tough to pick a top in gold if you're going to be looking at long-term valuations and where this gold rally is going to end up. Even more so now that we've hit a fresh record high and the upswing since mid-2018 is gathering pace.
The few key factors that continue to work in gold's favour are still the same as last year i.e. real rates getting lower and central banks on easing mode à la QE, but with the virus crisis, that sent things into overdrive this year.
So, where is the limit for gold if this is the case?
One can argue that the sky is the limit as we are seeing talks of valuation of $2,500 and even $3,000 at some stage moving forward. That's not too far fetched considering the fact that the Fed isn't going to hike rates at any time in the next five years at least.
But exuberance breeds contempt, and if we start seeing calls for $5,000 or even $10,000, that may sort of hint that the euphoria is going a bit too far perhaps.
I still hold little doubt that gold will continue to grind higher in the next few years. It's arguably one of the best investment opportunities this lifetime. But along the way, expect violent pullbacks as it becomes the consensus trade among investors.
For now, the break of the 2011 high is allowing gold to keep running on the narrative of lower rates, weaker dollar, and/or declining volatility. You pretty much can take your pick at any of the reasons and there's something for gold buyers to chew at.
That said, I think trying to hold a move above $2,000 may be hard to come by unless one of those reasons mentioned stretches out in a massive and extended manner.
After all, nothing in the market ever moves in a straight line and parabolic moves in gold have always led to violent pullbacks in the past so just be mindful of that as well.
In short, be mindful if you're chasing a further move higher but on any major dips, expect those to be bought up eventually - especially over the longer-term.
The case for silver
My interpretation for silver at this point in time is a rather simple one, it is that the commodity "lags" gold and basically follows along the same path for any move.
Sure, demand and supply conditions are also underpinning silver at this point in time but surging gold prices have always been a key factor that has helped silver to rally as well in the past and this time should be no different.
As the fundamental case for gold looks to be more appealing, that should apply to silver too.
The August 2013 high @ $25.11 will be the next key resistance to watch out for but gold price movement is one to keep an eye on as well during this time.
Silver's parabolic turn largely began after the virus crisis and thus it isn't as sharp as gold's upswing since 2018. That may see silver less vulnerable to more violent pullbacks but I would expect the trend to mirror gold for the most part.
