(Kitco News) - Despite a strong start at the beginning of the week, gold prices have ended the week in negative territory. To add insult to injury, the yellow metal is no longer the best performing precious metal as silver now claims that title.
May Comex silver futures settled the week at 16.313 an ounce up 6% week, its biggest weekly gain since early May 2015. The rally also helped propel silver to be the best performing precious metal with gains of 17.6% on the year, compared to gold’s 16% year-to-date performance. June Comex gold futures settled Friday at $1,234.60 an ounce, down 0.58% on the week.
Gold could have some difficultly regaining its former title as sentiment is shifting in the marketplace. This week’s Kitco News Wall Street vs Main Street Gold Survey shows that retail investors and market professionals are once again at odds for their price expectations next week.
This week positive sentiment among retail investors dropped as 66% of survey participant are bullish on prices, down from 80% from the previous survey. At the same time only 24% of market professionals are bullish on prices, down from 60% last week.
Although gold prices are weaker, Ole Hansen, head of commodity strategy at Saxo Bank, said that silver is finally getting its moment in the sun. He added that uncertainty in the global economy continues to support demand for safe-haven assets; however because of gold’s elevated prices, investors have been a little more selective.
“After gold’s inability to break above $1,260 motivated investors to look for other underperforming assets and they saw better opportunities in silver,” he said.
Hanson added the shift into silver caused the biggest weekly drop in the gold-silver ration since August 2013. The ratio settled the week just above 75.6.
Ole said that next week investors should pay attention to silver; however, he is not convinced that prices can move much higher in the near-term and could consolidate after this week’s strong performance.
“We need to see the ratio fall below 75 before investors get excited again and jump back into silver,” he said.
Turning to gold prices, Ole Hansen said that he expects to see gold push higher, but remain its range with $1,250 expected to be strong resistance next week.
“Gold’s inability to push to March’s high demonstrates that additional time is needed for the market to consolidate after its first quarter performance,” he said.
Phil Streible, senior market strategist at RJOFutures, said that he is more bullish on silver than he is gold. He added that gold’s recent disappointing performance could lead to a test of support around $1,200 an ounce or even $1,190 an ounce.
“I still think silver is going higher and we could see prices push towards $20 he said. “U.S. dollar strength will be key to determine gold’s and silver movement.”
Christopher Vecchio, currency analyst at DailyFX, agreed that U.S. dollar moves will be important for gold and silver prices; however he added in a recent report that silver’s recent strength could highlight renewed weakness for the greenback.
“"Silver prices have started to outpace Gold prices - which if it continues, would be historically good for precious metals and foreboding for the US Dollar. This matters greatly for the USDOLLAR Index, currently battling to uphold support against the September and October 2015 swings lows,” he said.
While silver has potential, Bart Melek warned investors that they still need to keep an eye on gold prices as this will set the tone in the precious metals marketplace.
He added that he is still optimistic on gold as the Federal Reserve remains “ambiguous” on potential interest rate hikes.
“Silver will only outperform if gold prices are moving higher,” he said. “But if gold takes a hit, silver will take an even bigger one,” he said.
With one more week to go before the next Federal Reserve meeting, analysts note that economic data could play an important role in prices next week. Markets will receive important regional and preliminary manufacturing data as well as housing market data next week.
By Neils Christensen of Kitco News; nchristensen@kitco.com