Silver, trading at 11-month highs this week on strong investor appetite and a more bullish outlook for industrial demand, could still move higher in the short to medium term, ABN Amro said Thursday.
Silver has outperformed gold as this year's strongest performing commodity, up 23% year to date to over $17.30/oz Thursday afternoon for the first time since May.
"When the overall outlook on China became less negative as Chinese data stabilized, the industrial demand outlook for platinum, palladium and silver improved," ABN Amro's precious metals analyst Georgette Boele said in a note.
Around 50% of silver demand is from the industrial sector, so while gold has hit a ceiling of around $1,280/oz since March, silver continues to rally as global industrial sentiment improves.
As a result, silver's ratio to gold has slipped to around 72 this week, its lowest since October, and down 14% from its all-time high of 84 at the beginning of March.
"We think that a move back to 60 in the gold/silver ratio is quite likely," Boele said, looking at the long-term average in the gold-silver ratio of about 57.
Silver prices have also been supported by a recovery in the base metal complex, on the London Metal Exchange this week.
Three-month copper was back above $5,000/mt on the LME the first time in a month Thursday afternoon, aluminum close to six-month highs above $1,630/mt.
"China's support measures are supportive for car sales and fears that China's commodity demand is plunging are receding," ABN Amro said.
"In addition, we expect economic data from the US and the euro zone to improve during the course of this year and next year. Hence, the demand outlook for platinum, palladium and silver will likely improve, resulting in further upside in prices."
The London Bullion Market Association Silver Price settled at $17.32/oz Thursday afternoon, up 35 cents on Wednesday. The LBMA Gold Price settled at $1,249.25/oz Thursday afternoon, down $2.75/oz on Wednesday's close.
