Silver Has Potential For 50% Rally - Bloomberg Intelligence
(Kitco News)- Fundamentals are in place for precious metals, especiallysilver, to significantly break out of current trading ranges, according to areport from Bloomberg Intelligence.
The report said that silver has a history of lagging itsindustrial metals companions and can rally as much as 50% by simply “catchingup.”
“Essentially unchanged from June 2016, silver has plenty ofroom to catch up to the 50% rally in the Bloomberg Industrial Metals Spot Indexand 3% decline in the trade-weighted broad dollar,” the report said. “It's beenabout 50 years since silver's 12-month range was this narrow, increasing thelikelihood of a sharp rally.”
Silver has traded range-bound for the last year, testinglows of $15.57 an ounce but barely breaking past $18 an ounce at its highs. Itsyellow metal counterpart, by comparison, has rallied 9% in 2017, widening thegold/silver ratio to highs of 82.
Mike McGlone, senior analyst at Bloomberg Intelligence, saidthat fundamental macro forces, especially a weakening dollar, remain the keycatalysts for a potential breakout of range-bound commodities like precious andindustrial metals.
“The weakening dollar, strong global purchasing-managersindexes and bottoming inflation are leading macroeconomic-foundation builders,”he said in the report.
The U.S. dollar index rose as much as 0.46% on Monday,reaching the highest levels since early March. However, the greenback has beenon a steady downward trend since early 2017, and the largely anticipated Fedrate hikes announced in March did little to bolster its levels.
“Despite the Federal Reserve's accelerated rate-hikeschedule, the dollar declined. Down remains its longer-term path of leastresistance,” the report said.
McGlone noted that silver is tightly correlated toindustrial metals and has a minus 0.58 correlation to the dollar when measuredannually over the last 20 years.
Similar to silver, gold is also to benefit from currentmarket conditions, according to the report.
“[Gold] generally shines vs. dollar weakness, increasing inflationand bottoming stock-market volatility,” the report said.
Equities tumbled in early April on the back of escalatingtrade war rhetoric between the U.S. and China, as well as heightenedgeopolitical tensions in Syria. The VIX index, however, is still hoveringaround its lowest levels in a month, with some analysts predicting the calm involatility to be short-lived.
Comex Junegold futures last traded lower on Monday, at$1,325.3 an ounce.
By David LinFor Kitco News
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