Precious metals hit record highs, but Heraeus analysts say gold, silver “severely overbought”

Precious metals analysts at Heraeus report that the market is showing strong warning signs.

Gold, silver, platinum, and palladium are all now considered severely overbought based on key technical indicators.

“Silver’s near vertical rally has triggered a series of cautionary signals across both technical and structural fronts,” the analysts were quoted as saying in a Kitco report. 

On COMEX, the silver contract had breached the $50 per ounce mark for the first time on Monday. Spot silver had climbed to $51 an ounce last week. 

Warning signs

The Relative Strength Index (RSI) has been consistently overbought since August, while the Average True Range (a measure of volatility) has reached a 14-year peak, Heraeus analysts said in a Monday report.

“A pronounced deviation away from the 200-day moving average (200-dma) also signals the market is stretched to extreme levels,” they said. 

The last instance of such a divergence occurred during the post-Covid-19 boom, and after the price peaked it fell by 27% over the next two months.

Adding to these worries is the backwardation of the futures curve, where CME contracts for 12 months and beyond are trading below the spot price, according to the analysts.

Heraeus analysts further noted that last week silver prices encountered some profit booking, before continuing the rally towards $50 an ounce. 

ETFs

The analysts reported that ETFs reduced their holdings by 7.6 million ounces in early-week trading, leading to three consecutive sessions of outflows due to profit-taking. 

After a significant outflow, strong dip-buying quickly absorbed these losses, adding back 8.3 million ounces, they added.

This surge drove spot prices to an all-time high above $50 per ounce, resulting in year-to-date gains of 70%.

Near-term market tightness is being reinforced by implied one-month lease rates which spiked to around 8% at the start of the month and jumped higher last week.

Silver set a new all-time high of $52.071 during Monday’s trading, and the price continues to hover close to the $52/oz level. 

Spot silver prices set a new record high of $52.071 per ounce during Monday’s trading session.

Prices remained close to $52 per ounce at the time of writing. 

Heraeus analysts said silver was not the only precious metal, but gold, platinum and palladium were all severely overbought at current levels. 

Gold 

The analysts noted that gold was nearly 20% above its long-term trend, while platinum remained near that threshold for the last couple of weeks. 

Palladium’s recent breakout also pushed it into similar territory last week. Readings this high have typically been followed by corrections and sometimes more significant bear markets.

They further noted that gold was at an inflection point after hitting $4,000 per ounce, and it was difficult to predict whether prices have reached their peak or if it was another peak on the way to more gains. 

The gold price has gone up for eight consecutive weeks, which is unusual but not unprecedented, and is very overbought on both daily and weekly timeframes.

Gold is currently experiencing a robust bull market, characterised by strong momentum. 

This upward trend could persist for an extended period before the market enters another consolidation phase, according to Heraeus. 

A correction of similar size or duration to those would not be unusual. In the short term, a down week would be normal as prices have rarely risen for eight or more consecutive weeks even if the rally then resumes.

At the time of writing, gold on COMEX was at $4,125.45 per ounce, up 3.1% from the previous close.

The contract had hit a record high of $4,136.62 per ounce earlier in the day. 

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