Silver prices to underperform gold prices, but there is a limit – ABN AMRO

Georgette Boele, senior FX & precious metals strategist at ABN AMRO, suggests that they expect silver prices to decline in the near term and expect a further deterioration in their outlook for global growth and global trade.

Key Quotes

“We have below consensus forecasts for economic growth in the eurozone and the US. We expect the Chinese and Indian economies to weaken as well. Next to that we expect weaker global trade. Industrial demand accounts for more than half of total silver demand. Jewellery demand is around 20% of total silver demand. If the global economy and global trade slow further (we don’t expect a recession), this will weigh on silver demand and the outlook for silver prices. In addition, we expect profit taking in gold prices and this should also drag silver prices lower.”

“So for the remainder of this year, silver prices will likely underperform gold prices. But there is a limit to silver’s underperformance to gold. We think that a gold/silver ratio above 90 is unsustainable, that silver is cheap, and that net-positioning is not extreme (as in gold).”

“For 2020, we don’t expect a material improvement in the outlook for global trade and in the global economy. We think most of this will already be reflected in silver prices though. In 2020, silver prices will likely follow gold prices higher again, mainly because of monetary policy easing by central banks, and an increase in the amount of negative yielding debt.”

“With silver prices following gold prices in an environment of weak economic fundamentals, gold prices will likely outperform silver prices. From the moment that global trade and global growth start to recover and provided central banks remain accommodative, we think that silver prices will start to outperform gold prices. A weaker US dollar will also support gold and silver prices. This is more likely to happen in 2021, though.”