(Kitco News) - Volatility in the silver market remains elevated as prices trade near their record highs above $58 an ounce. While the precious metal has room to move higher, one market strategist is urging investors to exercise caution.
In his latest precious metals note, Mike McGlone, Senior Market Strategist at Bloomberg Intelligence, said that silver’s parabolic rally is “a little scary,” and because of the metal’s volatile nature, he sees the potential for prices to rally to $75 an ounce – or fall back to $40 an ounce.
Spot silver last traded at $58.43 an ounce, roughly unchanged on the day. However, prices are up 100% this year and are seeing their best annual gains since 1979. Silver continues to significantly outperform gold, with the gold/silver ratio trading at 72 points, a four-year low.
McGlone pointed out that silver prices are 83% above their five-year average. He added that, historically, silver’s extreme rallies have never ended well.
“The 1980 peak at about $49.50 an ounce wasn't surpassed until 2011, and 1993 marked the low around $3.60 -- about a 93% drawdown. A comparable stretch occurred in 1974, when year-end silver closed at $4.47, a level not exceeded again until 1977, marking a relatively mild time correction,” he said. “The 2010 rally to close at about $31 was the most recent extended example: $49.80 marked the 2011 high and $11.64 was the nadir in 2020.”
With annual market volatility of around 30%, McGlone warned that a one-standard-deviation move in price could push silver to $40 an ounce or to $75 an ounce next year.
Although momentum indicators signal that silver is significantly overbought, many analysts have said that technical price action is playing second fiddle to market fundamentals.
Silver’s parabolic move comes as growing demand has put significant pressure on limited supplies. Five years of market deficits, driven by robust industrial demand, have significantly depleted above-ground stockpiles.
Meanwhile, the threat of potential tariffs on silver, after the U.S. government classified it as a critical metal, is adding to supply-chain turmoil and market liquidity issues.
The final piece to silver’s recent record highs has been surging global investment demand. Analysts note that growing economic uncertainty has renewed expectations for aggressive easing from the Federal Reserve while at the same time, inflation pressures remain fairly elevated. All this is creating the perfect environment for hard assets like silver.
Although silver prices are expected to remain volatile, analysts have said there is no end in sight to the current market deficit as mine production remains constrained, and further tightness in the marketplace due to supply-chain issues should continue to support prices at elevated levels.
