(Kitco News) – Gold’s price momentum is starting to weaken, but investors are finding value in other precious metals, specifically silver as the metal trades near a 4 month high, according to some analysts.
Not only are silver prices trading at a multi-month highs, but the gold-silver ratio has dropped below 90 for the first time in a month. Looking at silver’s recent price action, the market has seen four days of consecutive gains. Meanwhile, gold prices have been stuck at the bottom end of their recent channel, hugging support just above $1,400 an ounce.
September silver futures last traded at $15.780 an ounce, up 0.65% on the day. At the same time, August gold futures last traded at $1,410.70 an ounce, relatively unchanged on the day.
Bart Melek, head of commodity strategy at TD Securities, said that it appears that investors are starting to recognize the value in the silver market.
“A lot of investors are starting to think that the gold market has exhausted a lot of its momentum, but silver still has a lot of room to move higher,” he said. “Investors are starting to recognize value in silver.”
For the rest of the year, Melek said that they see a significant improvement in silver, with prices pushing to $16.70 by the end of the year, a gain of roughly 6% from current prices. Next year, he said, the bank sees prices pushing to $18.75.
Jim Wyckoff, senior technical analyst at Kitco.com also said that silver is an attractive asset for bargain hunters.
“This week’s gains in silver have given the market a much more bullish technical posture on the daily chart, which is inviting more chart-based buying,” he said. “Keep in mind that just three years ago silver prices traded above $21.00 an ounce, and from late 2010 until early 2013 prices sustained levels above $25.00.”
Commodity analysts at Commerzbank said that investor interest in silver-backed exchange-traded products appears to be the drive behind the latest price rally.
“Silver ETFs have continued to register substantial inflows in recent days – inflows since the start of the month have exceeded 600 tons,” they said.
Although higher gold prices are making silver prices more attractive, Melek said that he expects silver can still rally even if gold falls below $1,400 an ounce.
“Silver has a lot of catching up to do,” he said. “Unless we see a significant rout in gold, silver can still move higher. We expect gold prices to be range bound in this higher channel between $1,380 an ounce and $1,440 an ounce.”
Analysts expect gold and silver to benefit in an environment of falling interest rates as markets continue to price in at least a 25 basis-point cut by the end of the month.
Tuesday, Federal Reserve Chair Jerome Powell reiterated the call that the central bank sees a case for looser monetary policy as global uncertainty is weighing on U.S. economic growth prospects.
“Many FOMC participants judged at the time of our most recent meeting in June that the combination of these factors strengthens the case for a somewhat more accommodative stance of policy,” Powell said in prepared remarks at an event in Paris. “We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”
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