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Although the price of gold has come under some selling pressure after last week’s record highs, it remains largely above $2,400 per ounce. Meanwhile, silver prices are still struggling near $29 per ounce. The underperformance of silver compared to gold has pushed the gold-silver ratio to its highest level in two months above 82, up 14 per cent from May.
Silver usually follows the price action of gold, and even in the late stages of market development, silver often outperforms gold. Commodity analyst Carsten Fritsch of Commerzbank said that from the recent performance of silver, the upward movement of gold after the release of U.S. inflation data is almost blind. The relative weakness in silver could be attributed to the general weakness in base metal prices, as industrial applications are expected to account for nearly 60 per cent of silver demand this year.
Commerzbank noted that base metals have struggled due to weakening demand from China, but analysts note that the sell-off in base metals has been overdone. The interest rate cuts that have been implemented by central banks, and those that will be implemented in the coming months, should help economic conditions to improve, thus brightening what is currently a very negative market sentiment.
Robert Minter, director of investment strategy at abrdn, said in a recent interview with Kitco News that he expects silver to eventually outperform gold as the Federal Reserve begins to cut interest rates.
He noted that investing in silver has outperformed investing in gold in each of the last three rate-cutting cycles. in 2000, gold was up 57 per cent but silver was up 65 per cent; in 2006, gold was up 235 per cent and silver was up 318 per cent; and at the end of 2018, gold was up 69 per cent and silver was up 101 per cent.
Julia Cordova, founder of Cordovatrading.com, said that while silver is struggling, there is still optimism that it will regain its lustre as prices remain above the strong support level of $28.41.
James Hyerczyk, senior technical analyst at FXempire, said that while silver has managed to rally above $29 an ounce, the key support level to watch is around $28.50. The analyst added that the short-term outlook for silver is bearish due to the fact that the dual identity of precious and industrial metal is not in favour of silver at the moment. Investors should keep an eye on the possibility of a break below the $28.57 support level, which could trigger further downside.
However, upcoming economic data, shifts in Fed policy expectations or changes in industrial demand could bring volatility and potential turning points to the silver market.