Silver to hit $26 (£17.68) per ounce by end of 2016
London (Apr 1) Macroeconomic consultantancy Capital Economics has reiterated its above consensus forecast for the silver price of $23 per ounce for the end of the year, rising to $26 for the end of 2016.
Julian Jessop, head of Commodities Research at Capital Economics, said in a note on March 27: “Silver has out-performed gold this year during periods when the prices of both have been rising, as usual, but it has also held on to more of its gains when both have struggled. This supports our relatively bullish view on the outlook for silver prices over the remainder of 2015 and in 2016.”
Jessop continues to see plenty of upside for silver, which has massively under-performed gold since2011. He cited the ratio of the price of an ounce of gold to that of silver is now around 70 ($1,200/$17), compared to a long-run average of around 60.
Gold and silver
Jessop added that: “Silver normally behaves like a high beta version of gold, tending to climb further when the prices of both are rising and fall further when they are both declining. This is mainly because the silver market is smaller and less liquid. The price action so far this year has largely kept to this pattern, but silver has proved more resilient on the downside. (See Chart 1) As a result, the price of silver has gained around 8% in dollar terms in 2015 to date, whereas gold is up barely 1%.
“This reflects a number of factors, but the most important is probably the fact that industrial uses account for more than half of the demand for silver, compared to less than a tenth of that for gold. What’s more, silver is often mined alongside industrial metals, and therefore sensitive to the same supply shocks. Correspondingly, while silver is traditionally classified as a precious metal (which makes sense given its high value), its relative performance against gold is closely correlated with the prices of industrial metals.”