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“Silver [is] the ‘tagalong’ awaiting a growth inflection point or catalyst,” Scotiabank commodity strategist Nicky Shiels said in a report last week. “[The metal] will begrudgingly tag behind any gold rise and should continue to underperform in the near-term until the growth inflection point.”
The gold-silver ratio is now at 113, after rising to an all-time high of 125 in March. This means that it now takes 113 ounces of silver to buy one ounce of gold.
The needed catalyst to push silver prices higher is lower supply and higher demand, but improved supply-demand fundamentals can only appear with time, according to Scotiabank.
“Fresh catalyst emerging with 1/3rd of global supply down, but fundamentally requires years of deficits to substantially draw down inventories,” Shiels wrote. “Gold/silver ratio to remain in a less bullish uptrend as macro markets navigate from late cycle era to recovery period.”
It appears that Bank of America is not just bullish on gold. In a report published Wednesday the bank ’s commodity analysts said that they see silver prices pushing to $20 an ounce within the next 12 months.
“Our supply and demand model implies that silver prices below $15/oz are hard to justify,” the analyst said in their report.
May silver futures last traded at $15.40 an ounce, up 0.4% on the day.
The analysts said weak industrial silver demand, which represents roughly half of the market, is the reason why silver prices have significantly underperformed gold. Industrial demand has fallen off a cliff as the global economy faces its worst downturn since the 1930s ’ Great Depression.
Currently, Bank of America economists are expecting the global economy to contract 2.8% this year. Weak industrial demand could end up pushing silver demand to its lowest level in 2004, the commodity analysts said.
However, although the growth outlook appears dismal, the analysts said that there is some hope that manufacturing will bounce back as nations recovery from the COVID-19 pandemic.