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Reddit Users Show Their Influence in Silver Market

29 January 2021

Precious Metals Commentary

Gold is in reactive mode with a sharp rise in market volatility. The VIX, the stock market’s volatility index, jumped to 37.20 pct on Wednesday, the highest level since last October. Gold is seen as a safe haven and demand rises in uncertain times, reflected by an increase in the VIX Index.

Early in the week, gold came under short term pressure as the US Dollar staged a recovery following testimony from the head of the US Federal Reserve (the US central bank also known as “The Fed”). The Fed said or did little that was unexpected, with US interest rates unchanged. The Fed was mindful that the USD recovery ‘had moderated’ in recent months, as shown by most recent economic data and that it was premature to think about reducing bond purchases. So far, exactly as expected.

On Thursday, the gold price then rallied to US$1864 as the US stock markets top 500 stocks dropped sharply. Technically, the stock markets drop stopped just below the Weekly Turning line at 3,752, before closing higher.

Key concerns are valuations in US equities in particular – with some remarkable moves playing out this week in certain equities – with Congress and the SEC finally signalling their intent to ‘look into’ these events. While we will not expand on it here, Google “Game Stop and Reddit” for more information.

The recovery in the Dollar Index, a measure of the value of the US Dollar relative to a basket of Top 6 currencies, has encountered resistance, though a continuation of the increase in the Dollar Index is certainly possible. Usually gold goes up when the Dollar Index goes down.

Silver rallied very strongly on Thursday, up by over 6%. This was attributed buying by retail customers in the US, taking a cue from a Reddit blog on the current [under]value of silver. Much like what happened with stocks, such a move is unprecedented but perhaps is a sign of things to come and another influencing factor in determining value.

Gold has rising support from the top of the Weekly Ichimoku cloud, which lies at US$1820. That provides a guide for where support should start to be felt below the current lows. (See the Weekly Chart below.)

Price targets suggest a weakening move to US$1827 and possibly US$1802 in the short term, a level within the Weekly Cloud support. Above US$1809, look for a recovery to the US$1865 and US$1896 level.

29 January 2021: Weekly Gold Ichimoku Chart

29 January 2021: VIX Index

Silver looks better in the short term. Although essentially following the same drivers as gold, the price is above the key Daily Ichimoku cloud level and credible price targets remain in place for a return to US$27.25 and US$27.85 in the medium term.

Shorter term, dips to US$25.45 should find support in the Daily Cloud.

29 January 2021: Silver Daily Ichimoku Chart