Disdain For Silver Can't Get Any Worse - Bloomberg Intelligence
(Kitco News)- Silver has seen little love frominvestors this year, but according to one market analyst, disdain for theprecious metal has reached its peak and prices are due for a bounce.
Mike McGlone, senior commoditystrategist at Bloomberg Intelligence, said in a report Tuesday that sentimentin silver is currently at levels that have often marked significant bottoms.Prices continue to hover near critical psychological support above $14 anounce; December silver futures last traded at $14.305 an ounce, down 0.68% onthe day.
Maximum contempt for the metalcomes as value, compared to gold, continues to hover near decade lows, McGlonesaid. Kitco.com shows the gold-silver ratio at 85.50 points, meaning it nowtake 85.5 ounces of silver to buy one ounce of gold. The historical average forthe ratio is around 50 points.
Gold prices have managed to pushhigher lately as risk-off sentiment in the marketplace promotes the preciousmetals’ safe-haven allure; however, silver has not seen the same benefits.While silver is seen as a precious metal, it also has significant industrialusages. McGlone noted that weakness in industrial metals is helping to keep alid on silver prices in the near term.
Negative sentiment can also beseen in futures markets as bearish speculative positioning continues todominate the precious metals, McGlone said. He added that bearish stance is notsustainable in the long term. He said that it wouldn’t take much for silver tobenefit from a short-covering rally as investors exit their bearish trades.
Although the silver market willcontinue to face headwinds in the near term, McGlone said two factors willrevive the precious metal.
“Silver, among the mostnegatively correlated to the dollar and positively to industrial metals,appears ready for a potential longer-term recovery,” he said. “For it to staydown - about 15% this year -- we'd need to see sustained dollar strength andweakness in industrial metals and gold. That's unlikely. With thetrade-weighted broad dollar near a multi-year peak, some minor greenback meanreversion should have an outsized bullish reaction in the silver price.”
McGlone noted that shiftingmarket expectations surrounding U.S. interest rates next year are helping tocap momentum in the U.S. dollar, supporting the precious-metals complex.Markets are expecting the U.S. central bank to raise interest rates in Decemberand still see two rate hikes next year; however, expectations for four ratehikes have been cut in half compared to the previous week.
“Weaker stock prices anddiminished expectations for Federal Reserve tightening are likely to nudge thedollar lower,” McGlone said.
By Neils ChristensenFor Kitco News
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