Precious Metals Could Resume Their Rally After Starting the Week Strong

On Monday, gold started the week on a high, closing the day with gains of 2% to put the metal on firm footing after it had climbed to a record high of $5,106 earlier in the day. Silver also registered gains of 7% on the day, reviving expectations that precious metals could be set to regain their upward momentum.

Precious metals have experienced intense volatility thus far in February, but the start to this week has enabled them to regain some of the ground they lost in earlier choppy trading.

The chief market strategist of Spartan Capital Securities, Peter Cardillo, says bullion is currently consolidating and could be preparing to stabilize and begin another phase of its bull run. He adds that if that next phase of its upward movement materializes, gold could climb to new record highs. Australia-based ANZ analysts think gold bulls are reasserting themselves and the precious metals are set to climb higher.

One of the key factors supporting the gains that silver and gold notched on Monday is the weakening of the dollar. Geopolitical uncertainty remains and could further support precious metals prices. Economic data expected to be released this week could also help metals in general record gains in their prices. Markets will particularly be watching out for CPI and nonfarm payroll data due to be released in the U.S. this week.

Precious metals have had wild swings from the time silver and gold had their prices tumble spectacularly weeks ago. Their worst day happened when Trump announced he was nominating Kevin Walsh as his pick to head the Fed once Jerome Powell completes his term as the central bank’s head.

Walsh is widely viewed as reluctant to reduce interest rates, and interest rates have an inverse relationship with precious metals prices. When rates are high, precious metal prices drop or stagnate and when rates reduce, precious metals rally. Low interest rates are good for precious metals because the metals are non-yielding assets. Low rates therefore slash the opportunity cost of having precious metals in investment portfolios.

Many analysts have referred to the recent slump in precious metals as largely driven by speculation rather than market fundamentals. However, Saxo Bank believes silver in particular is likely to continue experiencing violent swings in either direction.

Markets and analysts at entities like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) will be keeping a close eye on the way prices of precious metals move over the coming weeks as this could determine the prospects of these metals for the rest of the year.

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