Silver's outperformance versus gold to stay: Capital Economics

Author: Paul Ploumis
30 Mar 2015 Last updated at 08:38:05 GMT
MUMBAI (Scrap Monster): According to senior analysts at Capital Economics, Silver has risen 8% in dollar terms year-to-date in 2015. During the same period, gold has appreciated only by 1%. This outperformance by silver is expected to continue in 2015 and 2016, noted Julian Jessop, Head of Commodities Research at the London-based economic research consultancy.

Gold had witnessed continuous upward journey for seven days in a row. However, the geopolitical tensions surrounding Saudi attack on Yemen, worries over Greece debt situation and the shaky US dollar had resulted in sharp rise in gold prices. However, the prices of the yellow metals settled under the $1,200 per Oz on account of strong profit booking. Overall, gold prices ended higher during the week. According to Capital Economics, Silver outperformed gold when prices of both metals rose. Also, silver has shown more resistance in bouts of weakness when compared with gold.

Silver has underperformed gold since 2011. Gold to silver price ratio currently hover around 70 as compared with the average of 60 over the past several years. The consultancy forecasts bullish outlook for Silver in 2015 and 2016. The silver prices are likely to reach $23 by end-2015 and increase further to touch $26 by end-2016. Consequently, gold to silver price ratio is likely to contract to 61 in 2015 and to 56 in 2015. The above forecasts are based on the assumption that gold prices are likely to do well during 2015 and 2016. However, a sharp fall in gold prices may badly affect silver’s performance, noted capital Economics.

More than half of silver’s demand comes from industrial sector, whereas gold’s industrial use constitutes only one-tenth of the total gold demand. As silver is mined alongside other industrial metals, silver is subject to supply risks and prices of industrial metals. For instance, recent revival in copper has provided some support for silver. On the other hand, gold is more sensitive to factors related to US economy such as Fed interest rate hikes.