Silver prices might be under pressure at the moment, but an expected surge in the macroeconomic environment might be enough to push the precious metal up rapidly, UBS analysts Dominic Schnider and Wayne Gordon have argued.
Silver fell more than nine per cent over the last three weeks, undoing the rally that it experienced throughout April and May.
UBS attributed this, at least partially, to weaker macro prints in recent months, with sentiment data like purchasing managers’ indexes being “rather soft, especially outside the US”.
However, with the US earnings season expected to be robust, and macro data in the US holding up, the Swiss bank’s analysts argued that silver’s downturn “should be short-lived”.
“With speculative accounts in the futures market having loaded up material long positions, profit- taking or risk-reduction can kick in at any time,” explained the analysts. “Such positions are more sensitive to risk-off events in markets, in our view.”
The UBS analysts suggested that investors should continue to back silver, especially as interest rates begin to fall and the US dollar peaks.
Currently sitting at $22 dollars an ounce (£17.13 an ounce), the UBS analysts said the target selling price for silver would be $26 an ounce (£20.25 an ounce) over the next few months.
It’s not just UBS saying that silver is undervalued, as markets are also ignoring its “potential for strong industrial demand,” said Sharps Pixley’s Bullion Report last month.
The group noted that the cuts to interest rates in major economies should benefit silver, as a boost in economic activity should increase industrial demand “and make the economics of renewable energy projects more workable”.
“Silver’s use in photovoltaic cells is the faster area of growth for silver demand, growing 64 per cent in 2023, compared with 2022,” noted the report.
In addition, lower interest rates reduce the opportunity cost of holding precious metals.