Silver is shining bright this year, outperforming gold significantly as it trades at its highest level in 11 years. After a relatively sluggish start in the first quarter, silver is making a strong comeback, with prices surging on Friday (May 17th) to close over 6% higher at $31.493 per ounce. While silver briefly surpassed $30 per ounce in 2021, it hasn’t ended at this level in over a decade. Since the beginning of the year, prices have soared by nearly 40%, with no signs of slowing down.
There are numerous reasons behind silver’s sudden surge: signs of easing inflation, expectations of lower interest rates, the recent meme stock frenzy, a brighter financial market outlook, and a booming industrial sector. All these factors, combined with supply concerns, are generally bullish for the metal.
2024 marks the fourth consecutive year of a silver market deficit, and this year is expected to be one of the most significant deficits. Moreover, China’s recent measures to stabilize its struggling real estate sector have further boosted silver. The country’s commitment to completing unfinished housing projects and easing mortgage regulations is expected to increase demand for silver, as a recovering economy will lead to a rebound in industrial activity, a significant consumer of the metal.
Silver has been on a remarkable run this year, with prices surging 30% year-to-date and 12% just in the past week. This momentum is expected to continue as silver remains significantly cheaper than gold. Currently, it takes approximately 80 ounces of silver to buy one ounce of gold, a ratio that is well above the 20-year average of 68 ounces of silver to one ounce of gold.
Gold prices have also seen a substantial increase this year, with benchmark gold futures rising about 17% year-to-date. In April 2024, gold reached an all-time high of $2,431 per ounce before pulling back slightly. However, current gold prices are not far from this record high, standing at $2,415 per ounce.
Will Silver Prices Continue to Rise in 2024?
Some believe that silver still has room to grow this year. Precious metal prices tend to move inversely to interest rates, which is why weaker inflation data—indicative of potential rate cuts this year—has sparked a rally in metals like silver. Therefore, the continuation of this upward trend may depend on the upcoming inflation data and further clues about the Federal Reserve’s rate cut path.
According to the CME FedWatch tool, traders predict a high probability of a 25-basis-point rate cut at the September meeting (54% market probability). However, some Fed officials have cautioned that the central bank needs more confidence that inflation is indeed cooling before making any moves.
According to analysts, silver is just beginning its upward trajectory, underpinned by solid fundamentals. JC O’Hara, chief market technician at ROTH Capital, believes that if silver can sustain its move above $30, “there is little resistance until the $35 to $37 per ounce area.” O’Hara also predicts that gold appears “poised to move higher and take out its April record high.” He sets a technical price target of $2,600 per ounce for gold.
Alex Kuptsikevich, a senior market analyst at FxPro, states that silver doesn’t seem overheated and is only now entering overbought territory on daily technical analysis indicators. Kuptsikevich’s short-term target for silver is $33 per ounce, but he adds that the precious metal could surge to its all-time high of $50 per ounce.
“The long-term trend also favors the bulls. In the past two years, the market has seen several instances of a quick recovery after a drop below the 200-week moving average. This year, prices have successfully broken above this average, but the most violent parts of the rally may still be ahead,” says Kuptsikevich. He adds, “Silver may be ready to repeat the outstanding growth it demonstrated in 2010-2011.”
In a recent interview with Kitco News, Michele Schneider, director of trading education and research at MarketGauge, highlighted the value proposition of silver, making it more attractive than gold. She also noted that silver tends to perform better in a heating inflation environment. While the core Consumer Price Index for April, excluding food and energy prices, saw its first decline in six months, it remained elevated at 3.6%.
According to Schneider, rising geopolitical tensions and new pressures on domestic manufacturing in the US will push prices higher and weaken the US dollar. “This volatility in silver is telling us that there are cracks in the economy, but we don’t know how these cracks are going to manifest. Is it going to lead to a debt crisis? Is the Fed going to have to lower rates? Either way, we’re going to see higher inflation,” she said.
Schneider considers the $30 level as a significant resistance point for silver. “If silver can hold the $29 and get through $30, I don’t see any reason why it couldn’t get to the $35 and $40 level,” she added.
However, not all analysts share the view that silver is outperforming as a monetary metal. In an interview with Kitco News, Julia Khandoshko, CEO of European brokerage firm Mind Money, attributed the sharp rise in silver prices to the broader rally in commodities. Silver’s recovery coincides with copper prices surging to an all-time high of over $5 per lb.
References: Livemint, Kitco
