Easy Come Easy Go – How Silver Lost Momentum
The price of silver is one of the 2020 protagonists in terms of its volatility. It rose over 300% in the months following the March panic, only to give back more than half of its gains recently.
Silver is one precious metal known for its increased volatility when compared with gold. For this reason, many investors prefer trading silver than gold, especially if the trading strategy is one based on scalping or swing trading.
Throughout history, many tried to corner the silver market. Due to the relatively limited supply and changes in industrial uses, the price of silver varied, and many times it reacted differently than what gold would suggest. For this reason, deviations on the gold/silver ratios from the average are not something uncommon.
USD Remains the De-Facto Safe-Haven
When gold made a new all-time high in 2020, the USD was sold across the board. Silver more than tripled in less than three months, while the price of gold printed above $2,060.
Strong demand from the investing community for both gold and silver products led to the move higher. As investors feared inflation, they diversified their portfolios by adding commodities as a hedge against inflation.
That is the normal reaction in times of a crisis. Yet what happened recently undermines the inflation fears and questions the role of gold and silver to protect against inflation.
Silver, just like gold, corrected from the highs. However, if silver is supposed to be a store of value, the recent move higher in the USD shouldn’t have that much of an impact on its price. Yet, it did.
It shows, once again, that the USD remains the de-facto safe-haven. Moreover, it remains the only reserve currency to consider.
During the USD depreciation over the summer, many voices argued that the USD is losing its world reserve currency status. Namely, that foreign countries, scared of the USD losing its value so fast, will switch from USD to other currencies. That did not happen, and it is unlikely to happen anytime soon for a simple reason – there is no suitable candidate.
Coming back to silver, it now trades around $22 after knocking at the $30 door at the start of August. It formed a triangle as a reversal pattern before moving lower. All eyes are now on the $20 level. If the USD makes a new leg higher, expect silver to be one of the markets that drops the most, considering that it had the sharpest rise earlier in the year.