The silver price could eventually outperform that of gold in percentage terms, UBS said, highlighting the metal’s encouraging performance so far in 2015.
Silver was last at $16.36 per ounce, up four percent on the start of the year. It peaked at $18.49 in January and bottomed out at lows of $15.29 in March.
It is outperforming gold so far this year – the yellow metal started 2015 at $1,189 per ounce and was last at $1,200, up one percent.
“Silver had been underperforming gold for most of April, with the gold:silver ratio rising from the low 70s towards the highs around 75. The underperformance was likely in large part due to positioning,” UBS’ Edel Tully said.
The metal began the month with 49 percent net longs, an all-time high, against 27 percent in gold, she said.
“While silver generally tends to exaggerate gold moves, weakness across the precious metals space this month has likely weighed more on silver considering relatively higher positioning,” she added.
Precious metals are stuck in a rut while the US central bank debates when to raise interest rates – higher rates will ultimately pressure precious metals prices lower, with the opportunity cost of holding gold increasing in particular.
The dollar’s continued strength against all other currencies is also putting precious metal under heavy pressure – the greenback is up ten percent since the turn of the year against the euro at 1.09, which may have made silver ” more vulnerable as prices across the precious metals space consolidated this month”, Tully said.
The gold:silver ratio has also fallen sharply from a three-month high of 75.53 on April 22; it was last at 73.15.
“That the gold:silver ratio has remained capped in spite of the silver’s weakness this month suggests that views towards silver are not as depressed as the net decline of 19.69 million ounces in spec positioning would tend to imply,” Tully said.
While recent moves in both gold and silver have been limited while gold flirts with the $1,200 mark, silver has gradually been building up strength.
“The reality is that silver’s performance in 2015 is actually quite encouraging and strengthens our conviction that it will eventually outperform gold further down the road,” she said.
(Editing by Mark Shaw)