(Kitco News) - Silver is struggling to hold critical support at $36 an ounce as gold prices continue to consolidate below $3,300. However, one analyst says silver still has plenty of upside momentum as it breaks away to forge its own path.
In his latest precious metals commentary, Bernard Dahdah, Precious Metals Analyst at Natixis, said he remains bullish on silver and expects it to continue outperforming gold through the second half of the year.
He projects silver prices will reach around $38 an ounce by year-end, while gold prices tread water near $3,250 an ounce. Spot silver last traded at $35.88 an ounce, roughly flat on the day; at the same time, spot gold last traded at $3,288.40 an ounce, up 0.48% on the day.
Dahdah explained that his bullish outlook on silver is driven by the significant decoupling of its price from gold. Historically, the correlation between the two metals has been extremely high—around 0.8.
However, since the start of the year, that correlation has fallen to 0.55, a breakdown that he believes should support silver prices.
“A regression analysis shows that over the past five years, the gold-silver beta has stood at around 1.5—meaning that for every 1% move in the price of gold, we typically saw a 1.5% move in silver. That said, since the start of this year, this relationship has weakened. This should reassure us that even with a strong shift in gold prices, silver is now less likely to be impacted as it was previously,” he said in the note.
Gold prices have significantly outperformed silver over the last two years amid economic uncertainty and geopolitical turmoil, which have fueled safe-haven demand for the yellow metal. However, silver began to catch up in May as investors sought greater value within the precious metals sector.
Looking ahead, Dahdah expects industrial demand to remain the primary driving force behind silver’s performance. He noted that industrial demand now accounts for 59% of global silver consumption, up from 51.5% in 2019.
“Much of this increase comes from the growing need for silver in renewable energy. For instance, the share of silver demand from the solar sector has risen from 6% of total demand in 2015 to 16% in 2023—and is approaching 20% in 2024,” he said.
However, Dahdah also cautioned that the green energy transition poses the biggest risk to silver’s outlook.
“Should copper or the broader energy transition narrative suffer a setback, silver prices could rapidly decline,” he warned.
Concerns are also growing over a U.S. Senate-proposed tax that could dampen silver demand. As part of Congress’s massive budget bill, a new tax would be imposed on wind and solar projects completed after Dec. 31, 2027, unless developers can prove they have not used any Chinese components. At the same time, the proposed legislation includes new tax breaks for coal production.
