Silver has been a constant disappointment to investors this year; the metal has significantly underperformed within the precious metal sector as the gold-silver ratio trades near a 26-year high. However, some analysts have said that with gold on the move, it could be time for silver to shine.
Both gold and silver futures are trading relatively unchanged on the day, ahead of the North American equity open. July silver futureslast traded at $14.74 an ounce and August gold futures last traded at $1,328.30 an ounce.
In a recent interview with Kitco News, Bill Baruch, president of Blue Line Futures, said that he is watching silver closely to see if the rally in gold can transform into a sustainable bull market. He added that silver’s recent bounce off from six-month lows is breathing new life into the precious metal.
“I think there is some real potential for silver,” he said. “Silver needs to join this party to bring staying power gold’s rally.”
Ole Hansen, head of commodity strategy at Saxo Bank, said that there are good reasons why silver has suffered more than gold. He explained that growing global recession fears have weighed on silver’s industrial demand, which takes up roughly half of silver’s supply.
“During the February-to-May sell-off, silver dropped twice as much as gold and only during the past couple of days has it shown signs of life after breaking the downtrend from the February high,” he said.
Hansen explained that because of the current market environment, speculative fund managers have been actively selling the metal. The latest trade data from the Commodities Futures Trading Commission shows that the precious metal’s speculative net-short positioning is at its highest level since November.
However, Hansen said that the sell-off is overdone and that short sellers are unprepared for higher prices in silver.
“A continued gold rally from here could on that basis attract short covering in silver, which may trigger an outperformance despite the mentioned headwinds,” he said.
Looking at the gold market, Hansen said that prices could consolidate above $1,300 an ounce, but if the market can hold support at $1,316, he sees the possibility of prices retesting the February’s highs around $1,350 an ounce.
Helping to support the yellow metal is the growing market pressure for the Federal Reserve to cut interest rates. The CME FedWatch Tool is now pricing in three rate cuts by the end of the year.
“With the FOMC moving towards a cutting mode, recession risks on the rise and a trade deal still nowhere near to being agreed, this is the time for gold to show what metal it is made of,” he said.
The iShares Silver Trust (SLV) was trading at $13.89 per share on Tuesday afternoon, up $0.02 (+0.14%). Year-to-date, SLV has declined -13.13%, versus a 5.12% rise in the benchmark S&P 500 index during the same period.
SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #9 of 34 ETFs in the Precious Metals ETFs category.
This article is brought to you courtesy of Kitco News.
