Metals Focus: Headwinds Persist For Silver; Metal To Eventually Outpace Gold
(Kitco News) - Silver will eventually outperform gold but headwinds remain for now, said theconsultancy Metals Focus.
Wheneversilver gains the upper hand, the gold/silver ratio would decline. This measureshow many ounces of silver it takes to buy an ounce of gold.
Analystspointed out that last week, the gold/silver ratio fell to 75, the lowest sincelate November, after having been as high as 82 in early April. As that ratiodeclined, silver was outperforming. Now, however, the ratio has edged higheragain to around 78 as of a Metals Focus research report released on Tuesday.
“Lookingfurther ahead, we eventually expect silver to enjoy more pronounced gainsrelative to gold, but for the immediate future it still faces headwinds onseveral fronts,” the consultancy said. “The first concerns the general malaiseamong many professional investors towards the precious metals, which has beenexacerbated by the impact of a resurgent dollar. This in turn owes much toexpectations of the timing and pace of a tighter monetary policy by the ECB[European Central Bank], and how this develops relative to that in the U.S.
“Anotherissue affecting sentiment towards precious metals in general relates to theperformance of U.S. equities. Although the stock market has faltered in recentmonths, with little apparent positive reaction to what was an exceptionallystrong corporate earnings season in the U.S., many investors still view this asa pause, before equities resume their upward momentum.”
Physicalsilver investment has been weak so far this year, Metals Focus said. Forinstance, U.S. Mint sales of once-ounce silver coins from January to May aredown 43% from the same period in 2017, the consultancy pointed out. Softinvestment demand has played a role in a silver-market supply surplus in recentyears, Metals Focus said, although analysts added they see this surplusnarrowing to 37 million ounces in 2018 from 45 million last year and 60 millionin 2016.
Silverhas also been impacted by an increasing correlation with industrial basemetals, with the latter stalling, Metals Focus said.
“For thecoming months, therefore, the silver price will still face major challenges,”Metals Focus said.
“Laterthis year though, as U.S. economic growth starts to falter, investors willincreasingly believe that equities have plateaued,” the consultancy continued.“Even if a correction does not emerge, some rotation into precious metalsshould take place as other factors should also boost investor sentiment,including a reversal of dollar strength (as the euro recovers), risinginflation concerns and fears about U.S. debt gaining momentum.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.