Silver prices have managed to hold critical support above $30 an ounce and are currently trading above $31. However, one market analyst notes that the precious metal continues to underperform gold – at least for now.
In his latest note, Carsten Fritsch, a precious metals analyst at Commerzbank, said he remains bullish on silver for 2025, as the metal looks to end the current year in lockstep with gold. The current gold/silver ratio is trading around 85 points, roughly where it started the year, even as prices have risen 30% in 2024.
“In other words, silver is still cheap compared to gold,” Fritsch said.
“Like gold, silver is being supported by the interest rate cuts already implemented and the prospect of further cuts by central banks. This is because silver is also an investment metal, despite its high industrial use.”
Although silver has dropped sharply from last month’s high of $35 an ounce, prices are poised to end the year at an impressive 12-year high.
Fritsch noted that the Federal Reserve’s easing cycle has supported investment demand for gold and has improved silver’s investment appeal this year, as evidenced by inflows into silver-backed exchange-traded funds (ETFs). However, he also pointed out that physical bullion demand is currently hovering at a four-year low.
While investment demand has improved in recent months, Fritsch emphasized that the main pillar of support for silver comes from industrial demand, which continues “to break record after record.”
Specifically, he said that silver usage in photovoltaic solar panels remains an important and growing source of demand.
“Silver demand for photovoltaics has more than doubled in the last three years and now almost equals the demand for bars and coins,” he said. “Rising industrial demand will ultimately ensure that physical silver demand, excluding ETFs, will also increase slightly this year, reaching its second-highest level after 2022.”
Due to robust demand, the silver market is expected to experience a supply deficit for the fourth consecutive year.
Looking ahead, Fritsch noted that analysts expect another supply deficit in 2025, which will support the precious metal’s long-term price outlook.
“We expect the price to rise to USD 32 per troy ounce by the middle of next year and to USD 33 by the end of 2025,” he said. “As a result, silver would also gain some ground against gold, and the gold/silver ratio would fall to 80 by the end of 2025, taking into account our gold price forecast of USD 2,650 per troy ounce.”
Written by Neils Christensen for KITCO ~ December 3, 2024
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