Silver was targeted for a reason by the new wave of social media investors this week, according to a panel of analysts, who also identified the precious metal as the top performer for 2021.
“Silver is our top favorite,” said Metals Daily CEO Ross Norman during the LBMA webinar on Thursday.
The choice to target silver was not much of a surprise, considering that silver has already begun to receive attention from a broader audience, even before the Reddit-triggered #silversqueeze phenomenon.
“Even before the spike in prices, we’ve seen over the past week. Investors have been friendlier to silver given its industrial properties,” said UBS precious metals strategist Joni Teves.
And even though this new interest will not immediately translate into higher prices, it will show up in the medium and long-term timeline. “Silver does have the potential to outperform gold in an environment where industrial demand is expected to recover,” Teves said.
Silver attracted a wider audience partly because it is more cost-effective than gold and partially because people understand silver better, said HSBC chief precious metals analyst Jim Steel.
“Silver was open to this. We do have more real interest in silver. It was driven by social media,” Steel said. “If you look at silver’s liquidity, it is thinner than gold but deeper than equities being pushed higher. Also, silver doesn’t have that same short positioning the way some of the equities did. That’s why we began to see the pullback.”
Analysts see silver trading above $30 this year with or without the social media trend, said Standard Chartered executive director at Precious Metals Research Suki Cooper. “Investors are coming back into silver. They do see more upside risk,” Cooper said.
The social media trend also revealed just how liquid the silver market is, she pointed out.
“It is a well-supplied market, with more than a year’s worth of inventory. What we could see some tightness in the near term if some of the retail industry started to unload,” Cooper warned.
Also, the more towards green energy is more of a long-term play for silver that will eventually positively impact prices, Cooper added.
According to the webinar, the outlook on gold remained bullish but a shade less optimistic.
“There is a strong correlation between gold-backed ETF buying and price. We are unlikely to get a record level of ETF buying again this year,” said Steel. “We do have QE continuing, with easy monetary policy stretching to 2021. We have a lot of fiscal spending. But that is not news to the market.”
Steel said gold would remain at elevated levels, but it is unlikely to charge aggressively higher.
“We have enough there to keep the market supported, but how much higher we can go is questionable,” he said. “It’s easy to forget that historically these are still very high prices.”
The U.S. dollar will continue to play an important role for gold, which could provide a trigger to lift prices higher, said Cooper.
“Gold’s strongest correlation is with the dollar,” she noted. “The bearish trend for the USD is likely to resume given the Blue sweep. We are expecting greater fiscal spending, with inflation expectations ticking higher and real yields remaining negative.”
However, in the near-term, consolidation is still the most likely outcome, Cooper said.
The physical gold market will remain key because it provides a cushion for prices when investor demand slows.
“In India and China, we started to see demand starting to stabilize. For India, aside from high prices, one of the challenges was less interest on a general retail basis. Customs duty being cut this week is very supportive and will help consumer interest to return in 2021,” Cooper said.
The physical demand for gold remains a weak spot in the outlook, Steel said.
Written by Anna Golubova for KITCO ~ February 4, 2021
