Silver Prices Stabilizing; BoAML Looks For Prices To End 8% Higher In 2019
(Kitco News) - One international bank is not giving up on silver, despite its disappointing performance the last few years.
In a report Friday, commodity analysts at Bank of America Merrill Lynch (BoAML) said that they see silver prices stabilizing around $15 and rising to $15.90 by the end of the year. The bank’s silver forecast represents a nearly 8% rally from current prices. July silver futures last traded at $14.775 an ounce, down 0.10% on the day.
The analysts’ comments come as gold-silver ratio trades at fresh multi-decade highs. The gold silver ratio on Kitco.com last traded at 88.02. This ratio measures how many ounces of silver it takes to buy an ounce of gold, with a rising number meaning underperformance by silver. The average ratio is around 60.
BoAML analysts remain positive on silver as mine supply continues to dwindle and investment demand remains stable.
“While fundamentals are still patchy, we are starting to see signs of stabilization, with mine production declining and photovoltaics adding demand that did not exist a decade ago,” the analysts said. “Our analysis shows that prices could stabilize around $15/oz, if investors held assets under management more or less stable.”
The analysts noted that silver-backed exchange-traded funds are an indication of underlying strength in the marketplace. They explained that despite the metal’s lackluster performance, investors are reluctant to sell their silver.
“We note that ETF holdings have been virtually unchanged YTD [year to date], falling only marginally by 0.1%. This is an indication that prices should be supported around $15/oz,” the analysts said.
Although investment demand is holding steady, the bank does see headwinds for the precious metal’s industrial demand, which makes up roughly half the silver market.
In the U.S., the firm said that weaker auto sales, which have declined 3.9% so far this year, will reduce a significant portion of North American industrial silver demand. However, this is a trend that could be short-lived, the analysts added.
“The continued electrification of transportation should increasingly support metal consumption in the coming years,” the analysts said.
Looking at Asia, BoAML said that limited growth in Japan’s electronics industry will also limit silver’s global demand outlook. In China, a growing domestic supply and falling manufacturing and investor demand for silver will also limit the metal’s global potential.