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Gold price rally is more stable compared to silver – Commerzbank

Kitco News

(Kitco News) - Silver’s rally continues to heat up with prices trading above $19 an ounce, its highest level in three years, but one analyst isn’t convinced investors have the same conviction compared to gold.

In a recent interview with Kitco News, Eugene Weinberg, head of commodity strategy at Commerzbank, said that silver is currently the hot play in the precious metals market, but the move is being driven by speculative interest. Gold’s gains, on the other hand, are on a lot firmer footing as investors are looking for long-term safe-haven assets to preserve wealth.

Silver might start outperforming gold, but by no means is it comparable to gold,” he said. “With so much uncertainty in markets not everything that shines is gold.”

Weinberg said that although momentum is propelling silver prices higher, investors can’t ignore the fact that it is largely an industrial metal. Nearly half of the demand for physical silver comes from industrial uses.

“Gold is your storage of value, silver is not an investment metal; it is purely a speculative investment,” he said.

Weinberg warned that silver like copper and other base metals is a cyclical asset. He added that the threat of a global recession will weigh on industrial demand, capping silver potential.

Tuesday, the Institute of Supply Management said that its manufacturing Purchasing Managers Index dropped into contraction territory for the first time since September 2016. But industrial weakness can be seen in other major economies around the world. Fears are growing that Germany, the biggest economy in the European Union, is falling into a recession.

Weinberg said that this growing sentiment will weigh on silver.

“Although silver could have more potential than gold in the short-term, it comes with higher risks,” he said. “As an investors you have to ask yourself if you want to take on that extra risk in an environment of growing economic uncertainty.”

Looking at gold, Weinberg said that it is only a matter of time before gold moves higher. He noted that gold remains in a strong uptrend as global real interest rates continue to push further and further into negative territory.

Both gold and silver have risen above Commerzbank’s year-end target of $1,500 and $18 an ounce respectively. Although gold and silver have room to move higher, Weinberg said that it’s an indication that the current turmoil in financial markets will only get worse.

“At this point though you have to ask yourself what the world is going to look like if gold goes to $2,000,” he said. “I don’t think you can rule that out because unfortunately, I think the economic situation will get uglier before it gets better.”

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