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Volatility Will Drive Metals Higher, Especially Silver - TD Securities

Sarah Abu-Shaaban  Thursday August 17, 2017 12:18

(Kitco News) - Market volatility is on the rise, placing precious metals in a favorable position, and one analyst is placing his bets on silver, which has significantly underperformed gold.

In a recent interview, TD Securities’ head of commodity strategy, Bart Melek highlighted the rising CBOE Volatility Index ($VIX), which went up approximately 60% in the last week due to heightened geopolitical tensions.

He said that a surging VIX is usually met with corrections from the Federal Reserve.

“If we see the VIX explode to the upside that implies there is a lot of risk and concern, and the potential for a correction. From the Central Bank’s perspective, that may spell trouble potentially,” he said.

Higher volatility usually bodes well for the precious metals.

“For the rest of the year, we’re going to see a range-bound market for gold, nothing very much above the 1,295 level,” he said. “Nothing material below 1250, averaging around 1275.”

However, Melek said silver’s volatility is double that of gold and a positive precious metals market would pave the way for silver to perform twice as well as gold.

“If gold goes up 2%, silver would go up more than that. It really hasn’t happened over the last little while, and we think there is plenty of room for it to occur,” he said. “Particularly since speculative interest is not all that exposed to the long side, and there is lots of room to get in.

The market is seening an improvement in both silver and gold as investors digest dovish sentiment from the Federal Reserve and European Central Bank, which have both highlighted concerns of weak inflation growth. Gold is back in striking distance of the key $1,300 level, with December futures last trading $1,290.80 an ounce, up 0.62% on the day. At the same time silver prices have push through $17 an ounce, with September futures last trading at 17.05 an ounce, up 0.62% on the day.

By Sarah Abu-Shaaban

For Kitco News

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