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It's silver's time to shine as precious metals get a boost from weak USD - BNP Paribas

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(Kitco News) - The U.S. dollar is back to within striking distance as the U.S. dollar trades near a fresh two-year low. Still, according to one market analyst, now is the time for another precious metal to shine.

In a recent email comment to Kitco News, Harry Tchilinguirian, senior commodity economist at BNP Paribas, reiterated his stance earlier in the month that he expects silver prices to outperform gold, which he said is now in a consolidation phase.

“With gold hitting new nominal highs, investor demand has, we believe, switched to silver as a cheaper alternative to hedge macro risk through precious metals,” he said. “ETF flows into gold have leveled off in August while continuing to modestly move higher in silver.”

The comments come as silver prices have started the week, surging higher, pushing above initial resistance at $28 an ounce, hitting a two-week high. December silver futures last traded at $28.73, up 0.48% on the day.

The rally in silver prices has pushed the gold/silver ratio to its lowest point since April 2017. According to Kitco.com, the ratio is currently trading at 69.35 points. This means it now takes slightly more than 69 ounces of silver to equal the value of one ounce of gold. The ratio has dropped sharply since March when it was trading at an all-time high around 125 points.

Although Tchilinguirian currently sees more potential for silver in the near-term. He is not ready to give up on the gold market. He added that the French bank expects gold prices to continue to rally through the end of the year as real interest rates continue to fall.

“With Fed policy to stay accommodative and realized inflation to rise in 2021, we could see real rates fall further, and by extension fuel another gold rally,” the bank said in a report published in early August.

Although the Federal Reserve’s monetary policy committee has said that it sees little benefit to capping interest rates, BNP noted that they expect some yield curve control program to be announced in September. This will keep pressure on the U.S. dollar, the bank added.

“The Fed will keep its policy rate at the effective lower bound (ELB) and pursue the expansion of its balance sheet until it is confident the economy and inflation is back on track. Consequently, the U.S. no longer possesses a comparative advantage in yield that helped prop the dollar earlier this year,” the analysts said.

In its August gold report, BNP upgraded their gold price forecast; the bank now sees the precious metal averaging the year at $1765 per ounce, up more than $150 from its previous forecast. For 2021, the bank sees gold prices averaging the year around $1,965 per ounce, up $465 of the prior estimate.

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