Macroeconomic consultancy Capital Economics has forecast that silver will outperform gold, rising to a high of $25 an ounce by the end of 2016.
In a note issued on January 23, Julian Jessop, head of commodities research said: “We are raising our forecasts for silver from $20 to $23 per ounce for end-2015 and from $23 to $25 for end-2016. This implies a gain of around 25% and 37%, respectively from today’s level of just above $18.”
Silver has performed poorly since early 2011 when it hit $50. In the note Jessop explained :“The ratio of the price of an ounce of gold to that of silver is now 71 ($1,300/$18.3), compared to a long-run average of around 60.”
Reasons for fall
Jessop argued that the two reasons for this fall were:
The price of silver is traditionally more volatile than gold. “As a result, silver has tended to out-perform gold when the price of both are rising, but to under-perfrom when both are falling.
Industrial uses account for over half of silver demand, compared to just 10% for gold. Thus, since 2011 a faltering global economy has impacted silver demand more heavily, particularly in late 2014.
However, he expects both factors to turn into positives this year. “For a start, we are forecasting further gains for the price of gold, to $1,400 by the end of 2015 and $1,470 in 2016,” he said. He also expects the global economy to pick up.
The writer holds gold ETFs and physical gold and silver.