The prices of precious metals were not immune to the big correction on risk assets that took hold throughout September. The safe haven of gold might have outperformed whilst all others around it fell, however, now the tables have turned, its sluggish performance is lagging the recoveries of its peers. 

  • Gold outperformed during September but this has now turned into underperformance
  • Silver and Platinum leading the charge in recovery

Gold underperforming the precious metals recovery

Gold tends to be a low beta trade. This means that during big market sell-offs, it will outperform other higher beta plays. However, during risk recovery rallies, gold will tend to lag.

This seems to be the case with the September risk sell-off, which has since turned into an October rally. We see here in the performance measured against other precious metals (Silver, Platinum and Palladium), gold fell less during September (especially the first half of the month).

Commodities since September

We can see that Platinum and especially Palladium really suffered in early September. It is interesting to see that the performance of Silver is very close to that of Gold, except with a higher magnitude of the moves.

However, since the risk rally kicked into gear on 29th September, the other precious metals have far outstripped the performance of gold. This is shown well in the performance chart rebased since 29th September. Silver, Platinum, and Palladium have all rallied over 10%, whilst Gold has musted just over 3%.

Commodities since Sep 29

Silver is a strong play in a USD correction

What we have seen is that Silver is the best performer in the recovery phase. As the US dollar (USD) has slipped back, Silver has shone.

The strength of the negative correlation between Silver and USD has certainly got a part to play in this. Since 2020 (so for the period covering the pandemic), Silver has an average correlation of -0.55 with the USD. This is an extremely strong correlation. However, just in performance through 2021 alone, the correlation has averaged an even stronger -0.68. 

Dollar Index and Silver

This tells us that if USD continues to correct, then Silver is a very strong candidate to perform well. It is worth noting that the 5-month uptrend on Dollar Index is close. How the market reacts to this could be crucial to the outlook for silver recovery.

Dollar Index

On the technicals, Silver (MT5 code: XAGUSD) is in a strong recovery phase, with a succession of higher lows and higher highs forming an uptrend in the past three weeks. The RSI momentum indicator is in strong configuration to use weakness as a chance to buy and a test of the next resistance at $24.85. There is initial support now around $23.60/$24.10.


Gold is stuck in a rut

As was shown in the performance graphs, Gold is struggling to build up any recovery momentum. Fundamentally, this comes as gold is impacted by conflicting forces. Despite the recent USD correction (Gold positive) and inflationary fears elevated (Gold supportive), US Treasury yields have also been rising (Gold negative). 

Inflation and bonds

The marginal decline in “real” bond yields (bond yields minus inflation) has helped to support gold through its strong negative correlation.

Gold and real yields

However, there is a recovery in risk appetite which has also taken hold, something that would drive the underperformance of Gold. This all adds up to the recent sluggish performance of gold.

There is very much a neutral outlook on the technicals for Gold (MT5 code: XAUUSD). Support is building between $1745/$1760 however, medium-term moving averages (21 and 55 day) are fairly flat, whilst RSI momentum is stuck between 45/60. Resistance at $1800/$1810 is preventing a retest of the primary downtrend. This means there is a neutral outlook between $1745/$1810. 



In a USD corrective market, Silver seems to be the precious metal to drive outperformance, whilst Gold lags. The roles would be reversed if USD were to engage in recovery. For now, the USD correction continues, and the outlook for silver looks positive. How long this lasts may be determined by the reaction around the uptrend on Dollar Index.