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Don't Count Silver Out; Prices To Hit $17.50 By End Of 2019 - Capital Economics

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(Kitco News) - While there is room for gold to continue to outperform silver in the near-term, one research firm said the current relationship between the two metals is unsustainable.

In a report Monday, commodity analysts at Capital Economics said that they expect silver prices to start to outperform gold in 2019 when the precious metals are expected to rally. The comments come as the gold-silver ratio trades near its highest level in more than two decades.

Kitco.com shows the gold-silver ratio trading at 84.41 points, down from last week’s high of 85.04 points. The ratio measures how much silver it takes to equal the price of one ounce of gold. The historical average for the ratio is around 50 points.

“Admittedly, history shows that the gold/silver ratio could rise further. It even hit 100 back in 1991. That said, both the gold and silver markets have changed markedly since then and more recent history has repeatedly shown that a ratio over 80 is hard to sustain,” the analysts said. “So, while we acknowledge that there are scenarios in which the ratio could go higher perhaps – including a slump in Chinese economic activity – we think that these are unlikely.”

The U.K.-based research firm sees gold prices pushing back to $1,350 an ounce by the end of next year; at the same time they see silver prices rallying to $17.50 an ounce. “This implies a fall in the price ratio to around 77 from 85 currently,” the researchers said.

Comex December silver futures settled Monday's session at $14.22 an ounce, up 0.57% on the day. Meanwhile, December gold futures settled the day at $1,205.80 an ounce, up 0.40% on the day.

Silver is forecasted to outperform gold next year as economists at Capital Economics expect the Federal Reserve to be forced to end its rate hike cycle. Growing demand for industrial metals will also provide much-needed support for the grey metal.

The analysts also see potential in silver as investor sentiment remains exceptionally negative.

“Bearish investor sentiment means there is only limited scope for investor sentiment to deteriorate and there is potential for a short covering rally to exacerbate any upward price pressure,” they said. “Investor sentiment towards silver recently reached the weakest level since records began in March 1995.”

Another reason the analysts are positive about silver is because the metal’s supply is expected to decline.

“While silver mine supply rebounded this year, the pace of supply growth is set to slow appreciably next year, partly due to a lack of new mines and expansions that are set to come on stream,” the analysts said.

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.

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