With stocks mixed over the past couple of days, as investors assess whether or not the coronavirus pandemic will continue to be a threat to markets long-term, precious metals have come under pressure as well, taking a breather after a strong rally. But some analysts see a bright future for silver.
While both gold and silver have benefitted from uncertainty due to the Covid-19 economic fallout, analysts say that silver has a more rosy outlook. The industrial metal could be more likely to climb into the year-end than gold on account of its positioning, investor sentiment, and industrial demand, says Orchid Research.
“We expect silver to be relatively more resilient than gold due to its lighter spec positioning. In fact, we think silver is better ‘positioned’ to rally in the months ahead,” Orchid Research wrote in a Seeking Alpha post on Wednesday.
While silver broke free from the grips of its precipitous decline in March, rallying along with stocks, the metal has yet to breach $19 again, struggling recently at the February highs, and would need to break over the $20 barrier to have some room to run. Investors are still waiting for that massive silver rally to arrive after the metal was trampled over in contrast to gold’s moves over the past year.
“Like gold, the rise in U.S. real rates on expectations for stronger economic growth has pressured silver prices lower,” Orchid Research specified.
But the environment is set to recover for silver in the second half of the year, the post stated, based on investor sentiment and industrial demand.
“While investor sentiment toward silver was neutral to bearish in Q1, it has sharply improved since the start of Q2. ETF holdings are up 25% YTD,” Orchid Research noted. “This, in combination with a plausible rebound in industrial demand for silver, could push … [silver]strongly higher into the year-end.”
Orchid Research suggested that investors purchase silver on dips while waiting for those longer-term gains, and can use ETFs to position themselves.
“SIVR [Aberdeen Standard Physical Silver Shares ETF] will enjoy a strong uptrend in the months ahead because 1) it has more catch-up to play after its marked underperformance in Q1, 2) it will likely enjoy a rebound in industrial demand as economies re-open for business, and 3) there is a positive shift in investor sentiment,” the post said.
Silver-backed ETFs also witnessed over 3 months of buying, which has helped to overcome the dearth of industrial demand in Q1 and Q2 due to all the COVID-19 shutdowns.
“ETF investors have recently come to the conclusion that the silver price was too low compared to the gold price and as such, silver could not be ignored as an alternative safe-haven asset. Silver ETF holdings have surged by roughly 25% since the start of the year,” Orchid Research said.
In addition, Orchid sees industrial demand receiving a boost in the second half of the year as economies reopen worldwide, and the coronavirus ideally is further contained.
ETF investors looking to get in on the silver action can look to funds like the iShares Silver Trust (SLV) and the Aberdeen Standard Physical Silver Shares ETF (SIVR), two of the largest ETFs backed by holdings of physical silver. For those looking for leverage, they can look to ETFs like the VelocityShares 3x Long Silver ETN Linked to the S&P GSCI Silver Index ER (USLV) and the ProShares Ultra Silver (AGQ).
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