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Metals Focus: Headwinds Persist For Silver; Metal To Eventually Outpace Gold

Kitco News

(Kitco News) - Silver will eventually outperform gold but headwinds remain for now, said the consultancy Metals Focus.

Whenever silver gains the upper hand, the gold/silver ratio would decline. This measures how many ounces of silver it takes to buy an ounce of gold.

Analysts pointed out that last week, the gold/silver ratio fell to 75, the lowest since late November, after having been as high as 82 in early April. As that ratio declined, silver was outperforming. Now, however, the ratio has edged higher again to around 78 as of a Metals Focus research report released on Tuesday.

“Looking further ahead, we eventually expect silver to enjoy more pronounced gains relative to gold, but for the immediate future it still faces headwinds on several fronts,” the consultancy said. “The first concerns the general malaise among many professional investors towards the precious metals, which has been exacerbated by the impact of a resurgent dollar. This in turn owes much to expectations of the timing and pace of a tighter monetary policy by the ECB [European Central Bank], and how this develops relative to that in the U.S.

“Another issue affecting sentiment towards precious metals in general relates to the performance of U.S. equities. Although the stock market has faltered in recent months, with little apparent positive reaction to what was an exceptionally strong corporate earnings season in the U.S., many investors still view this as a pause, before equities resume their upward momentum.”

Physical silver investment has been weak so far this year, Metals Focus said. For instance, U.S. Mint sales of once-ounce silver coins from January to May are down 43% from the same period in 2017, the consultancy pointed out. Soft investment demand has played a role in a silver-market supply surplus in recent years, Metals Focus said, although analysts added they see this surplus narrowing to 37 million ounces in 2018 from 45 million last year and 60 million in 2016.

Silver has also been impacted by an increasing correlation with industrial base metals, with the latter stalling, Metals Focus said.

“For the coming months, therefore, the silver price will still face major challenges,” Metals Focus said.

“Later this year though, as U.S. economic growth starts to falter, investors will increasingly believe that equities have plateaued,” the consultancy continued. “Even if a correction does not emerge, some rotation into precious metals should take place as other factors should also boost investor sentiment, including a reversal of dollar strength (as the euro recovers), rising inflation concerns and fears about U.S. debt gaining momentum.”

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