Silver prices have risen to their highest level in more than a decade on the back of gold's bull run and China's economic stimulus measures, but some analysts expect the rally to fade as industrial demand remains a concern.
Silver, which is both an investment asset and an industrial metal, rose to $32.71 an ounce on Thursday, its highest level since December 2012, and has risen more than 35% so far in 2024, leading the precious metals.
Precious metals performance this year
China’s central bank this week unveiled its biggest stimulus since the coronavirus outbreak, cutting the seven-day reverse repurchase rate on Friday. The Federal Reserve cut rates by 50 basis points last week.
“China’s stimulus is boosting industrial metals, which is what silver traders have been waiting for,” said Ole Hansen, head of commodity strategy at Saxo Bank.
He added: “Sustained strength in gold, coupled with industrial metals prices settling at higher levels, should allow silver to continue to outperform gold, with the gold-silver ratio set to fall back into the 70 to 75 area, potentially driving silver’s outperformance by 10%.”
The gold-silver ratio measures how many ounces of silver one ounce of gold can buy and is used by the market to gauge future trends as it shows how silver’s current performance correlates to gold’s historical performance.
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“The rate cuts should provide a bullish impetus to global economic activity and support silver consumption,” said Max Layton, an analyst at Citi. “We expect silver prices to rise to $35 in the next three months and $38 in the next 6-12 months.”
Macquarie expects the supply deficit in the silver market to persist over its five-year forecast period and said investor flows are likely to remain key to near-term price action, with ETF holdings likely to provide the most support.
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However, consolidation in China’s solar industry and questionable effectiveness of stimulus measures could pose headwinds for silver in the near term.
In addition, Hamad Hussain, assistant climate and commodities economist at Capital Economics, said, "Traders do seem to overestimate the probability of the Fed cutting interest rates by another 50 basis points in November. Therefore, the rise in silver prices is unlikely to continue in the coming months as some of the positive factors boosting silver demand fade."
Julius Baer analyst Carsten Menke believes that in the medium and long term, silver's performance depends mainly on gold rather than any specific situation in the silver market.
Article forwarded from: Jinshi Data
