Silver to outperform gold prices on the long-term – ABN Amro

Georgette Boele, Senior FX and precious metals strategist at ABN Amro, expects a lower silver price in the near-term due to a risk-off environment and a downshift in expectations in demand for silver. On the longer-term,however, when the global economy recovers again, it is likely that silver prices will outperform gold prices again.

Key quotes

“There are two situations when it is more attractive to invest in silver compared to gold. First, industrial demand is larger for silver than for gold. If global growth recovers, there is more industrial demand for silver, and this supports the silver price. It is likely that in this environment silver prices outperform gold prices. Currently investors expect that the economy will recover considerably as lockdown measures are eased. Therefore, silver prices have outperformed gold prices. Second, silver prices are at relatively attractive levels compared to gold prices. In March, gold was 127 times more expensive than silver. At the start of June gold was 95 times more expensive than silver. The long-term average of the gold/silver ratio is around 60. So, there is more room for silver prices to outperform gold prices but this will take time.”

“In the near-term, we think that there are several factors that could spoil the party for silver prices. For a start, investors do not seem to be pricing in the scale of the earnings and macro weakness we are seeing and the likelihood of a slow rather than V-shaped recovery. A downward adjustment in demand expectations for silver will weigh on silver prices. Moreover, we expect another risk off wave between now and three months. It is likely that investors will close part of their positions. Speculators are net-long on the futures market. The positions that investors hold at exchange traded funds are at a new record high. Another factor that can dampen demand for silver are the tensions between the US and China.”