Silver Breaks Higher

We have liked precious metals for the last few weeks, and gold in particular, having shown the earliest momentum. The market has been questioning the USD given the recent quick fall in rates and Fed expectations (lower real yields) and the increasing drumbeat of negative USD comments from Trump. However, in DM at least, it is hard to find an appealing alternative given NIRP from the ECB, SNB and BoJ and continued hard Brexit concerns. These factors have conspired to make precious metals look attractive. Another position we have liked is long Silver vs. GBP. We found silver especially interesting vs. GBP given the constant potential for Brexit misfortune and the upcoming election. The signal we wanted in order to increase our confidence (and positioning), however, was a turn down in XAU/XAG. Often XAG, as a high beta precious metal, will be the big mover, taking this pair lower during bullish periods. Until now silver has clearly lagged the move in gold. Today, however, we have seen a break lower and we take it as a sign that the precious metal rally is broadening out.

The following charts illustrate the XAU/XAG roll-over and pop in Silver as well as the break higher in XAGGBP.