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Silver seen climbing faster than gold as Yellen wakens bulls

Metal is ‘substantially undervalued’ versus peer, Gregersen says.

Investors may be better off with silver rather than gold. The Federal Reserve’s pledge to stick to its dovish outlook on US monetary policy has fueled a rally in precious metals and silver usually beats its more valuable peer in a rising market.

After the Fed raised interest rates by a quarter percentage point Wednesday, chair Janet Yellen said the central bank was willing to tolerate inflation temporarily overshooting its 2% goal and intended to keep its policy accommodative for “some time.” UBS Group said the gradual pace of tightening means negative rates will deepen, the dollar weaken and gold rise.

“Silver is substantially undervalued compared to gold and has plenty of space to appreciate both in dollar terms and relative to gold,” Gregor Gregersen, founder of Singapore-based Silver Bullion, said in a email. “Currently the move into silver is a trickle, but it might very well become a flood once the mood of the market at large shifts.”

The gold-to-silver ratio rose to 71 on March 14, the most in two months, and above an average of 62 in the past decade and a low of 32 in 2011, showing there’s potential for silver to appreciate versus its peer. Spot silver added 0.9% to $17.4964 an ounce, extending a 2.7% gain a day earlier.

The metal, sometimes called “poor man’s gold,” has risen more than 9 percent this year, while gold’s up less than 7%. The unpredictability of President Donald Trump’s administration and risks surrounding the outcome of elections in France and Germany this year have driven haven demand.

Supply may drop following mine closures and prices need to rise to boost output, according to Suki Cooper, analyst with Standard Chartered in New York. On demand, industrial use is expected to be roughly flat this year, though still near a record, said Jeffrey Christian, managing director of CPM Group. “Use in solar panels, electronics, batteries, jewellery, chemical process catalysts, and other manufactured products will remain strong,” he said.

Societe Generale is less upbeat on prices. The metal will probably be steady this year before weakening through 2021, according to SocGen in a commodity outlook emailed this week. “Central to this is a gradual US policy tightening, which provides support to the dollar, along with a slowdown in key emerging economies, particularly China, which we expect to negatively impact the demand for silver.”

© 2017 Bloomberg


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