Gold-Silver ratio: Fundamentals favor for Silver prices
NEW YORK (Scrap Register): The gold-silver ratio and supply/demand fundamentals favor silver, said Standard Chartered in a snippet.
The gold-silver ratio has hit a two-year high. This measures how many ounces of silver it takes to buy an ounce of gold and currently is around 81.6.
Usually, when the ratio has risen above 75, a mean reversion is driven by silver prices rising rather than gold prices falling.
However, more than just technical factors look favorable for silver, in our view. The firm expects silver’s fundamental deficit to widen this year, predominantly driven by robust industrial demand growth.
Analysts point out that China’s silver imports are up 36% year-on-year so far in 2018, while India’s silver imports are up 63%. Analysts also look for increased demand for use in solar cells.
The laggard dynamic, which happens to be crucial for price recovery, is subdued investor appetite. Speculators hold a net bearish position in Comex silver futures.
Exchange-traded product flows were positive in February and March, but are still down for the year to date.
Silver prices tend to outperform when both industrial and investment demand are growing; we expect investor demand to turn more favorable amid a weaker U.S. dollar and rising inflation expectations, Standard added.
The strength of industrial demand should limit downside risk, and provide a boost over the gold price rally.