Is Silver 11-Month High Just The Start?

By Paul Ploumis (ScrapMonster Author)

April 21, 2016 02:41:11 AM

(Kitco News) - The silver market has taken off in spite of gold’s struggle to make new gains, and, according to one international bank, silver’s 11-month high is just the beginning.

Wednesday, May Comex silver futures were up 1% on the day, last trading at $17.155 an ounce, its highest price since early June 2015. The grey metal has become the best performing precious metal and is currently up more than 23% since the start of the year.

In a report published Wednesday, ABN AMRO said it is currently reviewing its silver forecasts for 2016, noting that its previous forecast is “too conservative.”

One of the reasons the Dutch bank is reviewing its silver forecast is because the metal’s outperformance has caused a significant shift in the gold-silver ratio, which is now trading just above 73. A few weeks ago, it was trading above 80.

“The gold/silver ratio has dropped by around 12% over the recent weeks. This may be a considerable move, but in historical context, it is just a start,” said Georgette Boele, coordinator of FX and precious metals strategy for ABN AMRO, in a report published Wednesday. She added that they are forecasting the gold-silver ratio to fall back to 60.

“This means that silver prices will have to rally far beyond our current silver price forecasts while gold prices will then only rise modestly,” she explained.

According to the report, China is the biggest factor behind silver’s latest rally. Boele noted that along with silver, platinum group metals are also benefiting from shifting expectations for China’s economic growth.

“The main difference between gold and silver is that silver has substantially more industrial applications than gold. When the overall outlook on China became less negative as Chinese data stabilized, the industrial demand outlook for platinum, palladium and silver improved,” she said.

Boele added that demand for industrial precious metals should also improve as both the U.S. and European economies are expected to grow this year and in 2017.

Boele also concluded that investors are now jumping into silver as it has the most potential. She noted that from its peak in April 2011 to 2015, silver prices fell 71%.

“No other precious metal has lost so much of its value up to now. This made silver a relatively cheap precious metal at the start of this year,” she said.

Courtesy: Kitco News