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Tactical reasons to buy silver, but gold continues to outperform - UBS

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(Kitco News) - While gold’s push above $1,700 an ounce, hitting fresh 7.5-year highs, is attracting a lot of attention, one bank said that investors shouldn’t forget about silver.

The silver market is rallying Tuesday as prices push to a one-month high above $16 an ounce early in the session. Although off its session highs, May silver futures are still holding strong gains, last trading at $16.05, up 3% on the day.

Silver’s renewed interest comes after prices fell to an 11-year low last month.

In a report published Monday, Joni Teves, precious metals strategist at UBS, said that it was only a matter of time before silver started to push higher

“We see upside risks and think that there are tactical opportunities in silver," she said. “Silver has generally lagged the move in gold, suggesting to us that it is well positioned to benefit from catch-up trades.”

Although UBS is positive on silver, Teves said that the precious metal does face some headwinds. The global economy has ground to a halt as governments around the world have issued “stay-at-home” orders and shuttered all non-essential services in an attempt to slow the spread of the COVID-19 pandemic.

Teves said that weak economic growth could impact silver prices and keep them contained in gold’s shadow.

“We continue to struggle to see sustained outperformance relative to gold given that silver does not tend to attract the same safe-haven and diversification flows as gold. A weak economic backdrop also serves as a fundamental drag given over half of silver demand comes from industrial applications.”

Looking at gold, Teves said that a push above $1,700 could attract renewed investor interest. She added that she sees room for higher gold in the near term. Currently UBS expects gold prices to average $1,800 for 2020. June gold futures last traded at $1,766.30 an ounce, up 0.66% on the day.

“We see upside risks considering the extent of policy easing and the potential for concerns on widening fiscal deficits to encourage investors to hold gold,” she said.

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