Silver and gold both broke out to the upside this past week, with silver close to a 12 year high this morning, while gold made new all-time highs last Friday/overnight.
The sense in markets is that those moves reflect Trump’s recent momentum in the polls (with betting odds recently moving in his favour). That is, “the Trump trade” has become a popular explanation for the rally in precious metals, as well as the strength in various cyclical assets like financials (and others, e.g. crypto). Those prices are expected to benefit, either from more business deregulation, large fiscal stimulus, and/or generally more ‘risk on’ & ‘stock market friendly’ policies (i.e. compared to a Harris Presidency).
Other assets, though, are acting in a contrary manner (to that thesis). The US dollar, for example, has strengthened over the past month (DXY up 4% since late September). The Trump policy intention, though, is to weaken the dollar to boost exports. Dollar strength is typically a headwind for silver and gold. Other assets are also not following the ‘Trump Trade’ theme (e.g. with oil service stocks falling over the past fortnight).
Added to which, silver long positioning remains crowded (fig 1b), sentiment is bullish, and our technical models are now close to their SELL thresholds (i.e. silver is technically overbought). As such, given the move higher in the dollar (and question marks over the ‘Trump trade’ thesis), downside risks to silver are building.
Fig 1: Silver & gold spot prices (USD/oz)
Fig 1a: Silver net speculative LONG positioning vs. silver price (USD/oz)
