(Kitco News) - Although gold is attracting significant attention due to hitting consecutive record highs this year, it is not the best-performing asset in the sector. That title belongs to silver.
While the “other precious metal” wasn’t able to maintain gains above $32 an ounce, it has managed to achieve its highest weekly close in 11 years. December silver futures settled on Friday at $31.816 an ounce, up 1% from last week.
Year-to-date, silver prices are up more than 32%, compared to gold's nearly 29% increase.
According to some analysts, silver saw strong demand this week after China announced its most aggressive stimulus package since the 2020 COVID-19 pandemic.
The Chinese government said it would inject CNY1 trillion into its largest state banks. Simultaneously, the People’s Bank of China has started aggressively lowering interest rates.
Analysts note that the potential for renewed economic activity in China due to the new stimulus measures is driving base metal prices higher, which in turn is supporting silver’s rally.
In a note on Friday, Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, said that China’s easing measures could push silver prices to $35 an ounce.
However, she added that renewed economic growth in China could be a double-edged sword.
“A large driver behind gold (and thus silver) performance year-to-date has been ‘wealth buying’ from the West and ‘fear buying’ from the East. Locals are rotating out of gold and into equities (anecdotally, people are queuing up in China to resell their jewelry). Therefore, SGE Gold should fall to a steeper discount versus London Gold, as there’s a shift from fear/war hedges to a reflation view,” she said in her note.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that although silver has been outperforming gold this past week, he still sees gold as potentially more valuable compared to the white metal.
He added, however, that both metals could experience short-term volatility as gold prices seem to be losing some momentum on the upside.
“After hitting a succession of fresh record highs following a surprisingly large U.S. rate cut, prices are showing signs of stabilizing. Some degree of buying fatigue is starting to emerge, raising the question of whether we are nearing a long-overdue consolidation or even a correction,” Hansen said in a note on Friday. “I still regard silver as being relatively cheap compared to gold, and with that in mind, I see silver outperforming. But first, I believe a correction is long overdue, so I don’t expect much further upside in the short term.”
Lukman Otunuga, Manager of Market Analysis at FXTM, expects silver to continue following in gold’s footsteps. He pointed out that higher prices are needed to sustain silver’s new rally and added that $32.70 is the key pivot point.
“A breakout above $32.70 could open the door to $34. Should $32.70 prove to be reliable resistance, prices may decline back towards $31.20 and $29.60,” he said.
