Gold and silver soar

In this report, we examine technical and market positions for gold and silver, concluding that $3,000 is not a hurdle for gold and that silver has significant catching up yet to do.

Gold and silver rose strongly this week, with gold going into new high ground, while silver, which has underperformed gold recently is catching up rapidly. In European morning trade, gold was $2999, up $90. And silver at $33.98 rose $1.48. That makes gold up 14% so far this year, while silver is up 18% — strong performances in sharp contrast relative to other asset classes which are sliding into bear markets.

This performance is beginning to be noticed by the investment management industry, which is severely underweight. Beginning to reflect this, trading volumes for gold futures have picked up, along with open interest on Comex. In the chart below, note how open interest (the black line) can easily rise towards 600,000 contracts before indicating gold futures being overbought.

What does this mean?

Quite simply, because gold (and silver) are the only bull markets for hedge fund traders, they are likely to continue to buy futures and sell dollars — their classic pairs trade. With the Swaps short and being squeezed again, it would appear that the psychological $3,000 level will be easily overcome.

Next up is gold’s technical chart: