【MACRO Insight】Will precious metals reach new highs again? Silver is showing signs of imminent rise！？

Despite facing high interest rates and a strong US dollar, gold remains favored as a safe-haven asset. Ewa Manthey of ING predicts that due to various factors, the price of gold may fall this quarter, with an expected average price of $2250 per ounce for the second quarter and $2218 per ounce for the full year.

Silver has seen a more rapid and robust increase, driven by financial market and industrial demand. As of 2024, the price of silver has risen nearly 25%, surpassing gold to become one of the best-performing major commodities this year. However, compared to gold, silver remains relatively inexpensive, with the current gold-to-silver ratio at 80:1, while the average ratio over the past 20 years has been 68:1.

Gold and silver typically move in sync as they are both considered as hedges against economic and monetary stability. The price of gold has reached historical highs due to central bank purchases, active retail markets in China, and expectations of an upcoming interest rate cut in the United States, leading to an increase in the price of silver as well. While interest in silver ETFs may not be as strong as in gold, physical silver sales are increasing.

Gregor Gregersen, founder of the Gold Silver Company, points out that some clients who originally intended to buy gold are now turning to silver in hopes of waiting for the gold-to-silver ratio to return to a more balanced level. His company saw the sales ratio of gold to silver increase from an average of 1:44 in 2023 to 1:74 from April 1st to 25th.

In the long term, silver is gradually approaching the value of its more expensive “cousin,” gold. In January of this year, the gold-to-silver ratio briefly exceeded 90, marking the highest ratio since September 2022. Citigroup predicts that if the Federal Reserve continues to cut interest rates and the economy remains strong in the second half of the year, the gold-to-silver ratio could drop to around 70. However, if the situation is reversed, the ratio may rise again.

The 30-year average of the gold-to-silver ratio has typically ranged between 40 and 60 in recent years, and when it strays far beyond this range, it usually quickly reverts back to the normal range. For example, during the COVID-19 pandemic lockdowns, the surge in the price of gold to over $2000 per ounce led to the gold-to-silver ratio skyrocketing to over 100. However, the subsequent sharp increase in the price of silver to nearly $30 per ounce brought the gold-to-silver ratio slightly above 64.

Silver is not only a financial asset but also a key raw material for many industrial products, especially in the field of clean energy technologies. According to a report by the Silver Institute, with the rapid growth of the solar energy industry, silver usage is expected to reach a historical high this year.

Gregersen points out that due to market shortages for the fourth consecutive year, end industrial users have begun tapping into major global inventories. The London Bullion Market Association (LBMA) saw its stocks drop to the second-lowest point in history in April, while trading volumes on the New York and Shanghai exchanges also showed seasonal lows.

In the April report by Daniel Ghali, the commodity strategist at TD Securities, it was mentioned that the existing silver inventory levels may be overestimated considering the ETF holdings. His analysis suggests that the market may have overly optimistic estimates of the actual available silver inventory, which could impact future price trends and supply-demand dynamics.

Further supporting this point is Gregersen's observation that due to the increase in industrial demand, silver supply is expected to gradually tighten. Particularly in the clean energy and technology sectors, the demand for silver as a key material is rising, putting pressure on the entire supply chain. Gregersen expressed concerns about supply issues in the coming months, mentioning that if investors start increasing their purchases, they might face the question, “Where do I go to find supply？”