China boosts, strong gold puts silver on streak, but not without risk By Reuters

By Brijesh Patel

(Reuters) – Silver prices rose to their highest level in more than a decade on the back of a spectacular bullion run and China’s stimulus measures, although some analysts expect the gains to fade as industrial demand remains a concern.

Spot silver — both an investment asset due to its relationship to gold and an industrial metal — rose to $32.71 an ounce on Thursday, its highest level since December 2012 and has gained more than 35% so far in 2024, leading the precious metals complex. (EMPTY/)

China’s central bank unveiled its biggest stimulus this week since the COVID-19 pandemic and is expected to cut its seven-day reverse repo rate. The US Federal Reserve cut interest rates by half a percentage point last week.

“The stimulus from China is giving industrial metals a boost, which silver traders have been waiting for,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“Gold’s continued strength, combined with stable to higher industrial metals prices, should see silver continue to outperform gold, with the gold/silver ratio falling back into the 70 to 75 area, which could lead to a performance of 10% of silver,” added Hansen.

The gold-silver ratio, which indicates how many ounces of silver an ounce of gold can buy, is used by the market to gauge future trends because it indicates silver’s current performance relative to its historical correlation with gold.

“Interest rate cuts should provide an upbeat boost to global activity and support silver consumption. We see prices rising to $35 over the next 3 months and $38 over the next 6-12 months,” said Citi analyst Max Layton.

Macquarie, which expects silver market deficits to persist over the 5-year forecast period, said investor flows are likely to remain key to near-term price action, with ETF holdings likely to provide the most room for support.

However, the strengthening of China’s solar industry and slower growth in the world’s second-largest economy could cause short-term headwinds for silver.

“China’s latest support measures are likely to be insufficient to generate a turnaround in growth, and traders appear to be overestimating the likelihood of another 50 basis point cut by the Fed in November,” said Hamad Hussain, assistant economist for climate and goods at Capital. Economy.

“Consequently, silver price gains are unlikely to be sustained over the next few months as some of the tailwinds driving silver demand fade.”

In top consumer China, industrial output growth slowed to a five-month low in August, underscoring weakening domestic demand.

“We believe that silver is primarily dependent on gold for performance over the medium to long term, rather than anything specific to the silver market,” said Julius Baer analyst Carsten Menke.