Gold and silver rose sharply in 2020, and their rallies could continue this year.
Both precious metals closed out their best years in a decade last week, capping off a tumultuous year spurred on by the COVID-19 pandemic.
In August, gold hit a new all-time high of $2,067.15, and the yellow metal ended the year up 25% – the biggest full-year advance since 2010. Silver gained 48% last year.
And for 2021, Miller Tabak chief market strategist Matt Maley says the two metals could hit new records, barring minor hurdles.
“They both look pretty good here,” Maley said. “We do need a little bit more upside in both of them to really confirm that it’s reigniting its upward trend.”
Pointing to silver’s chart, Maley said both metals “saw a downside move in August and September” after big rallies in the early half of 2020, that saw silver breaking below a trend line extending back to its March low.
“That really worried me,” Maley continued. “I thought, ‘Geez, this is going to be a problem for silver.’ But then, instead of making a lower low, it held its early-fall lows and made a double bottom. That was bullish.”
The double bottom pattern pushed silver to make a new higher high above its November peak, which Maley said is another “very bullish” sign for the metal, adding that its now “slightly above that trend line, but it needs to move a little bit higher to kind of confirm that it’s reversing its trend. But it’s getting very close. So, a lot of bullish potential there.”
One catalyst that should propel silver higher over the long term is rising solar panel production. That’s according to Goldman Sachs analyst Mikhail Sprogis, who said in a recent note that the metal stands out as an “obvious beneficiary” as global infrastructure stimulus moving toward renewable energy, and solar in particular.
For one example President-elect Joe Biden has pledged to install 500 million solar panels over the next five years, with Goldman estimating solar installation will jump by 50% from 2019 to 2023.
Sporgis added that even as silver prices have risen higher over the last year, solar panel makers are finding new ways to use silver more sparingly, with newer panels having around 25% less of the metal. And while this will temper demand for the shiny metal, it won’t eliminate it.
“All in all, over the next three years solar should boost silver total industrial demand by 2% in the base case and by 9% in a bull case,” Sporgis said, adding that if the bull case materializes, silver prices could see a 10% boost.
But gold, on the other hand, is in what Maley calls a “downward-sloping trend channel.”
Gold hit a record in August as the dollar sank to its lowest level since April 2018 amid an unprecedented wave of stimulus by central banks and governments that led to currency debasement and inflation. Since then, gold has slid 7% to trade at $1,917.30 at the time of writing.
“It’s bumping up against the top line of that trend channel right at $1,900,” Maley said. “So, if it can break above that, that’s going to be bullish. We really want to see that followed by a nice higher high as well. So, that $1,950 level is really the one I’m looking at to confirm that we’re going to return to that upward bias in gold. So, again, both have a lot of potential, but we need a little bit more upside before we can really raise a green flag again on the two commodities.”
“Gold’s main drivers—weaker U.S. dollar and low real interest rates—are likely to provide support,” even as coronavirus vaccines are distributed around the world, said Vasu Menon, the executive director of investment strategy at Oversea-Chinese Banking Corp. And with the Fed likely keeping rates lower for longer, Menon added that “it is too early to throw in the towel on gold.”