Will Silver Outperform Gold As Metals' Rally Continues? - Analysts DebateBy Sarah Benali of Kitco News
Friday February 12, 2016 12:50
(Kitco News) - It’s been all about gold since the start of the year, but some analysts are turning their attention to silver.
Unable to agree on whether or not silver can outperform gold this year, two analysts do agree on one thing: it depends on industrial demand, particularly for electronics.
According to Simona Gambarini, commodities economist for U.K.-based Capital Economics, silver should outperform gold and rally to $16.50 an ounce by year-end. She added that prices should eventually rise to $18 an ounce by end-2017.
Gold and silver futures have been rallying since the start of the year, both up around16% and 14% year-to-date, respectively. April Comex gold futures were last down $10.90 at $1,236.90 an ounce while March silver was down 0.18% at $15.765.
“While subdued industrial demand has been one of the main reasons behind the weakness in silver prices over the last few years, 2016 could be the turning point,” Gambarini said in a research note Friday, adding that it is likely to happen during the second half of the year.
Focusing mainly on electronics demand, which accounts for about 25% of total silver demand, she noted that over the years, silver has beat gold 70% of the time when electronics demand is on the rise and when sentiment towards the sector is positive.
“Data released by Markit last week confirmed that electronics demand is showing signs of improvement lately, with the Global Manufacture of Electronic Equipment PMI reaching 51.4 in January,” she said.
However, one analyst at Thomson Reuters GFMS disagreed, and expects electronics demand for silver to decline.
“To start, the average size of consumer devices has been declining and this trend is expected to continue,” said Erica Rannestad, senior analyst in precious metals demand for the research firm.
“[T]traditional PC shipments, which accounts for the largest segment of total device shipment volumes and contain the highest per-unit amount of precious metals among these devices, are declining while other device shipments are rising,” she added, commenting on data provided by Gartner, a U.S.-based technology research firm.
Rannestad explained that despite there being a rise in other devices, they are much smaller in size and therefore use less precious metals.
“[T]he total volume demand for PMs is slated to be flat to lower,” she argued. “[W]hile consumer expectations are ‘improving,’ according to the Consumer Technology Association, this is more so about spending, which sort of reinforces my point – sure device demand will increase, but not in PMs’ favor.”
The latest GFMS data shows that silver demand for electronics has been declined over 6% from 2013 to 2015 and is expected to be 242.5 million ounces in 2016. Over the same period, total physical demand for silver has also declined by about 4%, and is expected to reach about 1.05 billion ounces so far in 2016.