Make Kitco Your Homepage

Silver Has Potential For 50% Rally - Bloomberg Intelligence

Kitco News

(Kitco News) - Fundamentals are in place for precious metals, especially silver, to significantly break out of current trading ranges, according to a report from Bloomberg Intelligence.

The report said that silver has a history of lagging its industrial metals companions and can rally as much as 50% by simply “catching up.”

“Essentially unchanged from June 2016, silver has plenty of room to catch up to the 50% rally in the Bloomberg Industrial Metals Spot Index and 3% decline in the trade-weighted broad dollar,” the report said. “It's been about 50 years since silver's 12-month range was this narrow, increasing the likelihood of a sharp rally.”

Silver has traded range-bound for the last year, testing lows of $15.57 an ounce but barely breaking past $18 an ounce at its highs. Its yellow metal counterpart, by comparison, has rallied 9% in 2017, widening the gold/silver ratio to highs of 82.

Mike McGlone, senior analyst at Bloomberg Intelligence, said that fundamental macro forces, especially a weakening dollar, remain the key catalysts for a potential breakout of range-bound commodities like precious and industrial metals.

“The weakening dollar, strong global purchasing-managers indexes and bottoming inflation are leading macroeconomic-foundation builders,” he said in the report.

The U.S. dollar index rose as much as 0.46% on Monday, reaching the highest levels since early March. However, the greenback has been on a steady downward trend since early 2017, and the largely anticipated Fed rate hikes announced in March did little to bolster its levels.

“Despite the Federal Reserve's accelerated rate-hike schedule, the dollar declined. Down remains its longer-term path of least resistance,” the report said.

McGlone noted that silver is tightly correlated to industrial metals and has a minus 0.58 correlation to the dollar when measured annually over the last 20 years.

Similar to silver, gold is also to benefit from current market conditions, according to the report.

“[Gold] generally shines vs. dollar weakness, increasing inflation and bottoming stock-market volatility,” the report said.

Equities tumbled in early April on the back of escalating trade war rhetoric between the U.S. and China, as well as heightened geopolitical tensions in Syria. The VIX index, however, is still hovering around its lowest levels in a month, with some analysts predicting the calm in volatility to be short-lived.

Comex June gold futures last traded lower on Monday, at $1,325.3 an ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.