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Wed 25 Sep 2019 03:57 PM

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Market alert: Silver prices rally back to life

The trigger for precious metal's price rally is very hard to pinpoint

Market alert: Silver prices rally back to life

The silver market suddenly sprung to life on Monday morning and prices rallied back above $18.5 per ounce. The trigger for the rally is hard to pinpoint but it seems as if short-term traders are willing to buy the dips as long as silver’s fundamentals remain favourable. We see more upside in the short term and reiterate our constructive view.

Typically, silver is taking its cues from gold. The relationship between the two has strengthened over the past few years amid silver’s lack of its own distinct drivers and an increasing importance of investment demand, comparable to gold. That said, the silver market suddenly sprung to life on Monday morning and continued to rally throughout the day.

Prices gained more than 3.5 percent and climbed back above $18.5 per ounce. Such sharp swings are not unusual for the small silver market, which is prone to excessive price volatility. In fact, yesterday was the 152nd daily move of 3.5 percent or more during the past decade, compared to 18 for gold or 17 for global equities.

The trigger for the price rally is very hard to pinpoint as falling US bond yields were offset by a stronger US dollar. It seems as if short-term traders are very much willing to buy any dips as long as silver’s fundamentals remain favourable.

Although silver is not at all recession-proof due to its large share of industrial demand, it still enjoys some safe-haven demand against the backdrop of slowing global growth and expectations of more monetary easing. We see more upside to prices in the short term and reiterate our constructive view. Yet, when it comes to picking a safe haven, we prefer gold to silver without any doubt.

Carsten Menke, Head of Next Generation Research, Julius Baer