Silver prices are having difficulty maintaining an important support level at $36/ounce. However, one analyst said that silver still has a lot of upward momentum as it begins to separate from the gold trend.
In his latest commentary on the precious metal, Bernard Dahdah - Precious Metals Analyst at Natixis - said he maintains a positive view on silver and predicted that the metal will continue to outperform gold in the second half of this year.
He predicts that silver prices will reach about $38/ounce by the end of the year, while gold prices will fluctuate around $3,250/ounce. In-kind silver is currently trading around $35.88/ounce.
Dahdah explains his optimistic view on silver stems from the fact that silver prices have detached significantly from gold prices. Historically, the correlation between the two metals is very high - about 0.8. However, since the beginning of the year, this correlation has decreased to 0.55, according to him, this is a factor supporting silver prices.
Restoration analysis shows that over the past 5 years, the gold- silver beta coefficient has been around 1.5, meaning that for every 1% change in gold prices, silver prices have typically fluctuated by 1.5%. However, since the beginning of this year, this relationship has weakened. This shows that even when gold prices fluctuate strongly, silver is less affected than before, he said in the report.
Over the past two years, gold prices have outperformed silver thanks to economic and geopolitical instability, causing safe-haven demand for gold to increase sharply. However, silver has begun to narrow the gap since May as investors seek more attractive values in the precious metal group.
Looking ahead, Dahdah expects industrial demand to continue to be the main driver of silver prices. He said industrial demand now accounts for 59% of total global silver consumption, up from 51.5% in 2019.
Most of this increase comes from the increasing demand for renewable energy. For example, the proportion of silver demand from the solar energy sector has increased from 6% of total demand in 2015 to 16% in 2023 and is approaching 20% in 2024 - he commented.
However, Dahdah also warned that the green energy transition is the biggest risk for silver's outlook.
If the red copper or the story of the energy transition is interrupted, silver prices could quickly fall sharply, he warned.
At the same time, there are growing concerns that the US Senate's new tax proposal could weaken demand for silver. In a large-scale budget bill, the US Congress proposed applying new tariffs to wind and solar power projects completed after December 31, 2027, unless developers prove they do not use Chinese components. At the same time, the bill also provides new tax incentives for coal production.
