Silver price continues to underperform gold, but it has plenty of time to catch up – analysts

(Kitco News) - All eyes have been on the gold market as prices have rallied to record highs above $2,200 an ounce; however, the attention is now starting to turn to silver as analysts look for that metal to be the next to rally.

Many analysts have pointed out that traditionally, because of its higher volatility, silver outperforms gold in both bear and bull markets. While silver continues to be punished more than gold on the downside, investors have hesitated to jump on the grey metal during rallies.

May silver futures last traded at $24.40 an ounce, down more than 1.2% on the day. At the same time, April gold futures last traded at $2,168.90 an ounce, down 0.95% on the day.

As gold has seen a surge in bullish momentum, the gold/silver ratio has remained relatively steady, currently trading above 89 points, meaning it takes 89 ounces of silver to equal one ounce of gold. The ratio’s historical average is around 60 points.

In a recent interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that while she doesn’t like to trade silver because of its volatility, she does see potential for the precious metal. She added that while record highs might be a little stretch, prices can move above $30 an ounce when momentum picks up.

Garner added that she isn’t too concerned that silver is lagging gold.

“We have seen in previous cycles silver is sometimes late to the party. Gold makes its move, and then a handful of months later, silver starts to move. There is no reason why we can’t see that again,” she said.

As to silver pushing to $50 an ounce, Ganer said there is a big wall around $30 the market has to get through first.

Famed commodity trader Dennis Gartman said silver is underperforming gold because of shifting market dynamics. He pointed out that unprecedented central bank gold demand is a solid pillar of support for the yellow metal, something that silver doesn’t have.

Gartman added that he would like to see silver prices rally as it would help to solidify the bullish momentum in gold.

“Silver has always led gold in a bull market and the fact that it hasn’t done it yet does bother me a little bit, but this time could be different,” he said.

Many analysts have said that the health of the global economy will be key to unlocking silver’s bull market.

Last week, in an interview with CNBC, Marcus Garvey, head of commodities strategy at Macquarie, said that silver can outperform gold if the global economy remains strong.

“As a dual precious and industrial metal, if we start to see global growth pick up a bit more over the course of this year — which is very much our base case — then I would expect silver to go from a relative underperformer to gold to being a relative outperformer to gold over really the third and fourth quarter of this year,” Garvey said during the interview.

Garvey added that silver needs to hold critical support at $24 an ounce.

In a recent note, Fawad Razaqzada, founder of Trading Candles, said it might be only a matter of time before silver takes off, breaking through $30 and pushing to $50 an ounce.

He added that he expects an economic rebound in China to increase the metal’s industrial demand, creating solid support in the marketplace.

Technically, he said that gold needs to hold support around $23.50 an ounce.

“Considering the current rally of approximately +7% this month, the bulls will be keen to prevent any drop below this level. The resistance trend line of the consolidation pattern is situated around $25.00, with a slight margin of variation. Beyond this point, a horizontal resistance level near $26.00,” he wrote in the commentary. “Therefore, $25.00 and, subsequently, $26.00 are the immediate resistance levels that the bulls need to surpass to instigate an upward movement on larger timeframes. If these levels are taken out, it's plausible to anticipate silver testing its multi-year resistance around $30.00 next.”