continues to set new record highs, becoming the center of global investor attention. However, while all eyes are on gold, – its often-overlooked “sibling” – has also made a strong breakout. This opens up an attractive trading opportunity for those looking for a potential catch-up trade.
Gold and Silver: Together, Yet Different
Historically, gold and silver tend to move in the same direction with a high level of correlation, especially during times of market volatility.
- Gold: Seen as a safe-haven asset, highly sensitive to monetary policy expectations.
- Silver: Functions both as a precious metal and an industrial commodity, making it more volatile and more responsive to the economic cycle.
This explains why when gold rises, silver often rises even faster, but when gold corrects, silver tends to fall more sharply.
Source: TradingView
At present, gold (XAU/USD) is trading at record levels, up +247% since 2010. Meanwhile, silver (XAG/USD) has also broken through key resistance levels to set new highs, rising +188% since 2010. This shows that silver is still underperforming gold, suggesting capital may rotate into silver.
From 2017 to now, the correlation between gold (XAU/USD) and silver (XAG/USD) has stayed positive, averaging between 40% – 94.2%, with the lowest point at 17.4% in 2020. This confirms a close but not perfect relationship, creating opportunities for strategies that exploit these price gaps.
Source: Myfxbook
Technical Analysis: Silver Pushes Higher
On the daily chart, XAG/USD is trading around 43.7, nearing the key resistance area from 2011.
- Nearest support: 41 – 41.8. Holding above this zone keeps the uptrend intact.
- Upside target: 49.8 – the all-time high of 2011.
- If support breaks, price may revisit 36.9 before finding new demand.
- The RSI has entered overbought territory, suggesting a short-term pullback is possible. However, the medium-term outlook remains bullish.
Source: IUX
Trading Strategies
The strong correlation between gold and silver is often used by traders in two main ways.
- First, correlation-based trading (pair trading): This involves going long on the weaker asset and short on the stronger one, with the expectation that the gap will narrow back to higher correlation. For example, if gold rises quickly while silver stays flat, a reasonable strategy would be to long silver and short gold, aiming to benefit from the “catch-up” move.
- Second, trend-following trading: Here, the price action of one pair can be used to confirm signals in the other, especially when correlation is above 0.85. For instance, if XAU/USD is holding a strong uptrend, the chances of XAG/USD breaking resistance become much higher.
- In the current market, silver is testing major resistance levels. A reasonable approach is to wait for pullbacks before joining the trend. Specifically, the 41 – 41.8 support zone is the nearest level to watch. If price holds above this zone, the uptrend could continue toward higher targets. On the other hand, if support breaks, it is safer to wait for signals around lower levels, such as 36.6 or 3,4, before entering new positions.
However, traders should also keep an eye on key U.S. economic data this week (, , , and Powell’s speech), as these events could be the main catalysts for silver’s next breakout.
In summary, while gold continues to lead, silver is emerging as a potential catch-up opportunity. Still, its next move will largely depend on U.S. economic data and signals from the Fed this week.
