Samson Li
While the gold has made a new high in July, investors and speculators have also been accumulating silver, citing high levels of the gold-to-silver ratio.
While the momentum in silver has been strong, a rational investor needs to stay alert of a possible short-term correction.
From a contrarian viewpoint, most of the recent posts on social media platforms related to silver have been very bullish, including one post about a taxi driver telling the author on why he was bullish on silver and crypto.
These would suggest that market sentiment in silver has been overheated, and normally, a sharp, short-term correction should be imminent.
From a trading perspective, the price of silver has jumped from $18 to $24 in two months, which is already over 30 percent rate of return and definitely far higher than that if you consider annualised return and those who use leverage in the futures market.
Thus those who got early into silver should have huge incentives to take profits. Having said that, we remain bullish on silver’s long-term potential.
While there has been lots of physical buying of silver for investment purposes this year (global silver ETPs have increased physical holdings by over 280 million ounces till the last week of July this year, which is over 360 percent of India’s silver bars investment demand in 2019), further price catalyst will likely be provided by money in the futures market.
Despite gold’s historically high and silver’s recent strength, one surprising fact is that net managed positions—the net of longs and shorts of managed money positions—in both gold and silver at the Comex exchange are still far below from their respective historical highs, suggesting that supporting force from the futures market is still on the way.
In the longer run, there is no doubt that both net managed positions in gold and silver will reach another historic high, as the outlook for the global environment is likely to be highly inflationary due to massive money printing.
Last but not least, how high silver can really go?
Based on many reports provided by various investment banks, more and more are targeting something close to a $3,000/oz gold price.
If we go back to silver’s last peak in 2011, when the price was close to $50/oz, the gold-to-silver ratio at that time was about 32x.
Therefore if we apply a range of 32x-50x, silver could possibly reach $60-94 per ounce, assuming a $3,000 oz gold target is doable.
(The author is Senior analyst, Metals Research at Refinitiv)
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