(Kitco News) - The recent significant profit-taking in gold had an outsized effect on silver prices; however, volatility in the market is starting to calm down, with growing expectations that the Federal Reserve will cut interest rates by the end of the quarter.
In this environment, commodity analysts at Bank of America, led by precious metals analyst Michael Widmer, expect silver to find its footing and once again outperform the yellow metal.
Although silver is more volatile because it is a smaller market, Widmer, in the report published Wednesday, said it appears to have stronger fundamental support.
“While 3-month implied gold volatility trades at around half the level of silver, gold risk reversals (calls minus puts) have periodically rallied in recent months, before giving back gains as the Fed has yet to embark on an easing cycle. Silver's risk reversal has pushed higher since spring and has remained elevated, reflecting the stronger fundamental outlook for the white metal,” he said in the note.
The comments come as gold prices have managed to push back above $2,400 an ounce, while silver tests resistance around $29 an ounce. Gold’s recent outperformance pushed the gold-silver ratio to a two-month high at 86.79 points. However, momentum is starting to shift as the spotlight is once again put on silver. The gold-silver ratio currently trades at 84.3 points.
Bank of America currently sees silver prices averaging around $28 an ounce this year. The average price is expected to jump sharply to $34.50 an ounce in 2025.
In his latest report, Widmer said that he sees the ratio falling another 10 points by the end of the year. He expects silver to outperform gold as the global economy drives industrial demand for the white metal.
“While the backdrop of a weaker USD and falling rates is supportive for both precious metals, the reacceleration of industrial production into next year should help silver outperform,” he said.
He added that, along with stable economic growth, the growing demand for green energy will drive industrial consumption for silver. Widmer noted that China continues to be the nation to watch when it comes to silver industrial demand.
“China's silver consumption has strengthened due to rising usage from the solar industry, while domestic silver production has slowed because the country's smelters face tight global mine supply. The import backdrop has also improved in other countries, with both the US and Japan boosting silver purchases from abroad,” Widmer said. “Solar panel manufacturers have increased their silver usage in recent years, with the China Photovoltaic Industry Association (CPIA) estimating that China's solar PV sector consumed 220Moz of silver last year, or 18% of global total silver demand (we assume less than that). The organization anticipates another year of solid growth this year.”
But demand is not the only factor driving silver. The mine supply of the precious metal has not kept up with consumption.
“Shortfalls are nothing new, but silver prices have been range-bound between 2020 and the first quarter of 2024, averaging around $23.5/oz. This has been heavily influenced by healthy inventories,” he said.
