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Silver prices have made their highs for the year - ABN AMRO

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(Kitco News) - Silver has made considerable gains against gold but the metal might be running out of steam in the near term even as valuations remains well below historical norms, according to one Dutch Bank.

Georgette Boele, senior foreign-exchange and precious-metals strategist at ABM AMRO, said in a recent report that silver still has some ways to go before its value – compared with gold – turns to normal levels, and traders will have to be patient as the precious metal continues to face significant headwinds.

“The long-term average of the gold/silver ratio is around 60. So, there is more room for silver prices to outperform gold prices. But this will take time,” she said.

Although silver has regained most of its losses from this spring, the Dutch bank isn’t optimistic that prices can move much higher through 2021. In a previous report, published mid-May, the bank said that it sees silver prices averaging around $15.40 an ounce this year. For 2021, the bank sees prices averaging around $17 an ounce.

The comments come as the gold/silver ratio has managed to remain below 100 points since the start of the month. The current ratio stands at 98 points, well down from the March highs of around 125. It takes a little less than 100 ounces of silver to equal the value of one ounce of gold.

In her latest report, Boele said that a slower-than-expected economic recovery will weigh on the silver market.

“Investors do not seem to be pricing in the scale of the earnings and macro weakness we are seeing and the likelihood of a slow rather than V-shaped recovery. A downward adjustment in demand expectations for silver will weigh on silver prices,” she said.

Another factor to limit silver’s performance for the rest of the year is the fact that investor interest is already at record levels.  In the event of another equity market sell-off and liquidity crunch, Boele said that silver could be susceptible to another wave of selling.

“In short, we expect a lower silver price in the near term because of a risk-off environment and a downshift in expectations in demand for silver. In this environment, silver prices are more vulnerable than gold prices,” she said. “On the longer term when the global economy recovers again, it is likely that silver prices will outperform gold prices again.”

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