The gold market started the week off on the right foot, gaining some ground as the silver market exploded upwards to an eight-year high. The silver market topped out in the overnight session at over $30 per ounce before giving back much of the gains during the day session.
The short squeeze being seen in silver is a theme that could be seen throughout the year. As an increasing number of social media platform users look for shorts to squeeze in various markets, the number of sharply rising and volatile markets could also increase. The silver market garnered interest over the weekend as a group of traders discussed the market being run by the “big boys” of Wall Street. The sharp move higher in silver today comes shortly after the significant run up for Gamestop stock last week, which has been the talk of financial media for several days now. The Gamestop saga led to small, retail traders putting a massive squeeze on major hedge funds and large market players, causing some to lose tens of millions of dollars in the process. The “Reddit” traders have certainly given the markets something to think about. Hedge funds and major market players may now think twice before shorting stocks or other asset classes as the risk of a significant squeeze could be on the rise.
The silver market is not only benefitting from the short squeeze today, but may also have a significant tailwind behind it as investors keep an eye out for the inflation trade. The inflation trade could potentially fuel upside in the raw commodity sector as central banks keep their feet on the gas pedal to boost global economies as the viral pandemic continues to cause economic damage.
Surprising given the upside seen in gold and silver today, the dollar was also higher on the day. The U.S. Dollar index has been a major factor in recent gold and silver upside and further weakness in the currency could drive further buying in precious metals and other hard asset classes. As the U.S. Government looks to continue its recent monetary policies, including ultra-low interest rates and significant quantitative easing, the pressure on the dollar could remain or increase further. If the dollar were to break down further, it could find itself trading at levels not seen for years against other major currencies. Further dollar weakness could be the primary catalyst for higher metals and could fuel a rise to fresh all-time highs for gold in the months or years ahead.
The gold bulls have a slight advantage on the daily chart. The bulls will look to target a close above the key $1900 level in short order. The bears, on the other hand, may look to sell the market lower into the January lows just above the $1800 level. Against the current geopolitical and economic backdrop, it is difficult, if not impossible, to come up with any compelling reasons the gold and silver market may head lower. The path of least resistance remains higher until proven otherwise and any significant dips are likely to be bought aggressively.