Make Kitco Your Homepage

Don't Panic Over Silver's Recent Performance, A Major Rally Is Coming - Market Analyst

Kitco News

(Kitco News) - Investors shouldn’t panic about silver’s lackluster performance against gold as the market is following a very familiar pattern according to one market analyst.

In a commentary on Seeking Alpha, Victor Dergunov, founder of Albright Investment Group said that history has shown that silver often underperforms gold at the start of a new bull market.

Dergunov’s comments come as silver prices continue to hover near the bottom end of a four-month trading range. May silver futures last traded at $16.44 an ounce; meanwhile, June gold futures last traded at $1,313.40 an ounce. Both markets are relatively unchanged on the day.

He added that he sees three significant factors that will eventually push silver out ahead of gold. He said that he is expecting silver prices to push past $50 an ounce ultimately.

“Silver is going to go up, it is going to go much higher, probably eclipsing former highs and permanently establishing a far higher trading level,” he wrote in his commentary.

Dergunov said that an elevated gold/silver ratio is the first reasons why he is bullish on silver.

Although gold is also trading at the bottom end of its well-established trading channel, the yellow metal has held up better with the gold/silver ratio hovering just below a multi-year high. Price data on Kitco.com shows the ratio just below 80 points. The ratio indicates that it now takes nearly 80 ounces of silver to equal the price of one ounce of gold, the historical average of the ratio is around 50 points.

“Historically, a low gold to silver ratio often registers around the top of a bull cycle, and a high gold to silver ratio frequently occurs before a major advance in gold and silver takes place,” Dergunov said. “During the last 20 years, every time the ratio hit 80, it coincided with a major bottom in the price of silver.”

Dergunov added that he also expects to see higher silver prices as inflation pressures start to creep higher. He noted that last month, the government’s Consumer Price Index showed annual inflation at 2.4% with core inflation at 2.1%, both higher than the Federal Reserve’s target of 2%.

“Once inflation becomes “hot,” and I am confident that it will soon, investors are likely to begin to accumulate silver at an accelerating pace,” he said.

Not only is inflation pressures increasing, but Dergunov warned that the Federal Reserve will continue to remain behind the inflation curve.  He explained that the Federal Reserve can’t raise interest rates too fast in the face of higher inflation because that could have negative impacts on economic growth.

Last week the Federal Reserve said that it expects inflation to run near its “symmetric 2 percent objective over the medium term.” For many economists, this is a signal that the central bank is comfortable with inflation rising above its target in the near term.

The third pillar behind’s Dergunov’s optimistic outlook is a weaker U.S. dollar. Despite the greenback’s recent surge in momentum that has pushed prices to its highest level for the year, Dergunov said that he still sees the currency in a long-term downtrend.

“The greenback faces several significant challenges going forward,” he said. “Burgeoning twin deficits of government spending and balance of trade coupled with continuously rising and accelerating inflation are likely to weigh heavily on the dollar going forward.”

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.

Precious Metal Charts

Follow Kitco News

Holiday Promo Mucha