Precious metals, as well as gold and silver ETFs, rose on Friday and hit month-long highs following the disappointing US employment report in August.
Both metals have moved off their recent lows since early last month, with silver climbing above $ 2.50 an ounce and gold climbing more than $ 150 an ounce. On Friday, gold was up 1.23%, trading at $ 1,834 an ounce, while silver was up over 3.65% to $ 24.79 an ounce.
The Department of Labor’s employment report found that the key component of non-farm payroll increased by only 235,000, compared with a projected increase of 720,000. The unemployment rate was 5.2% in August, which was roughly in line with market projections and compared to the 5.4% unemployment rate reported in the July report.
Non-farm employment in July was revised up significantly from an already strong number, which may be one reason gold and silver prices pulled back from their initial gains on Friday before recovering.
The Federal Reserve watched the labor market report closely as it helps determine future monetary policy.
Federal Reserve Chairman Jerome Powell said in public statements last week, “If the economy performs broadly as expected, it may be appropriate to slow down the pace of asset purchases this year.” This would begin the process, one to remove an important element of the central bank’s toolbox to support economic recovery during the time of crisis, which also served to prop up stock prices.
“What we are seeing is that the market is really trying to wrestle with the idea of what is more important to it: is it about the economy or is it about monetary policy?” Steve Sosnick, chief strategist of Interactive Brokers, told on Friday Yahoo Finance Live. “We have been in a monetary-driven market for so long that it is difficult to say that monetary factors are not currently at the forefront of the market’s mindset.”
“But I think we can see here … we can’t really figure out if this is delaying the rejuvenation in any meaningful way,” he added. “But there are things in here that aren’t necessarily bad, other than the headline. The wages are good, the unemployment rate is good. “
Robust cash flow
While the labor market report could dampen stocks and potentially boost metals, at least in the short term, analysts are generally optimistic that there will be a sustained economic recovery and that companies have robust cash flow thanks to favorable monetary policy.
“We continue to see ups and downs in Delta, but aside from those mood swings, the bigger picture is that we are still having a self-reinforcing recovery,” Rebecca Patterson, director of investment research at Bridgewater, told Yahoo Finance. “We see companies flooded with cash; We are seeing tremendous demand, which has obviously been spiked thanks to all of the fiscal and monetary stimuli over the past year. Companies trying to meet this demand must recruit and raise wages. As consumers get higher wages and jobs, they have more opportunities to spend. “
“Ultimately, it is the straightforward monetary policy, the ongoing fiscal policies and this positive flywheel where businesses and consumers are mutually reinforcing that help stimulate the market,” she added.
Technical analysts for silver and other precious metals also see potential for more upside potential in industrial metals.
According to Kitco analyst Rajan Dhall, “The 4-hour chart below shows that silver is recovering from a long-term downtrend. The price fell from June 1 ($ 28.71 / oz) to $ 22.29 / oz. Since then, the price has hit 3 higher lows, breaking the psychological zones of $ 23 and $ 24 / oz.
Kitco added, “Price has moved out of the range of the current consolidation, but the bulls will try to see if it can break the resistance level of $ 24.68 / oz on the upside. Beyond this point, the next resistance zone is at 25.69 USD / oz. “
There are some potential pitfalls for silver, however.
According to some reports, China will begin trading in yuan-denominated commodity futures contracts that will be available to foreign traders and investors, which could affect precious metals markets. China’s State Council on Friday announced its plans to offer more commodity futures contracts, including shipping contracts. Foreign investors currently already have the opportunity to trade on Chinese futures markets such as crude oil, iron ore, rubber and bonded copper. The official statement announced plans to promote adoption among foreign traders by creating an “international commodity futures market with prices and settlement in Renminbi.”
In addition, some analysts are skeptical that silver will play a significant role in the currency’s future, even if gold takes its traditional role as the standard and supports the fiat currency. Instead, some experts see the blockchain that performs this function.
“Even if the global financial world adopts a new gold standard in the future, silver may never come into circulation as money again,” Tiggre wrote in a recently published research report.
The blockchain path
Speaking to Kitco News host David Lin, Tiggre said that blockchain technology could replace the role silver has played in the past, representing fragments of the value of an ounce of gold.
“You used silver to make change and you used copper to change silver. It was like this. But in today’s world we have wonderfully solved this problem with blockchain / distributed ledger technology. There are dozens of Goldbacak cryptos currently out there, ”he said.
Tiggre also suggested that the traditionally linked relationship between silver and gold could break, and that silver could instead begin to track copper.
“The value of silver would be derived from its industrial supply and demand bases. The price of silver would track copper more closely than gold, ”he wrote in his research report.
Investors who want to get exposure to silver without having to physically hold the metal themselves can turn to ETFs. The Aberdeen Standard Physical Silver Shares ETF (SIVR) and iShares Silver Trust (SLV) can help keep track of the silver market.
SIVR, which rose over 3.34% on Friday, uses a physically assisted methodology, an idea popularized by ETFs as investors get tired of the complexities of futures contracts and the dangers involved. By using this physically hedged strategy, this fund can eliminate the problems of contango and backwardation and allow investors to more realistically price the metal they hold.
Besides, the ProShares Ultra Silver ETF (AGQ) and the Invesco DB Silver Fund (DBS) are two other funds that focus on the silver market.
You can find more information on the precious metals market in our Precious Metals category.