Silver, as a substitute for gold, is favored by investors, and UBS expects that the performance of silver relative to gold will further improve. The tight supply and demand situation of silver is favorable for the upward trend of silver prices, but this alone is not enough to drive a significant increase in silver prices. UBS believes that the net long positions and ETFs of silver have started to rise, and the silver market may continue to experience a physical deficit. In addition, silver also plays an important role in the transition to green technology and renewable energy
The surge in gold prices has triggered a strong domino effect in the precious metals market. Among them, spot silver has accumulated an increase of 18% so far this year, with a momentum more fierce than the 14% increase in spot gold during the same period.
UBS strategist Joni Teves pointed out in a research report released on Tuesday that as many investors were caught off guard by the speed and magnitude of the rise in gold prices, silver now provides an opportunity for investors to catch up. While the supply and demand for silver itself is indeed tight, it is not enough to support a sharp rise in silver prices. However, in the case of soaring gold prices, silver, as a cheaper and more volatile alternative to gold, naturally attracts investors' favor.
UBS believes that the gold-silver ratio has been hovering at a relatively high level, indicating that silver is more attractive relative to gold. Although silver's performance so far this year has been relatively mild compared to its historical performance, it is expected to improve further over time, especially as the Fed begins to cut interest rates in the second half of the year.
What is the future trend of silver?
UBS expects that silver's performance relative to gold will further improve in the coming quarters, mainly driven by two factors:
First, the growing interest of investors in chasing rising prices and seeking lower-priced and more volatile alternatives to gold, especially against the backdrop of the Fed's interest rate cuts in the second half of the year.
In addition, the rebound in risk appetite, rising commodity prices, and market concerns about inflation may also drive silver prices higher.
Finally, the tight supply and demand fundamentals of silver, coupled with the risk exposure in the green technology trend, may attract more investors to actively participate in the silver market.
It is worth noting that UBS points out that a tight supply and demand situation in favor of silver prices moving higher, but this alone is not enough to drive a significant increase in silver prices. Instead, UBS sees this tightness as a favorable factor in an environment of rising gold prices.
The report predicts that the silver market will continue to experience a physical deficit in the future, and the improvement in investment interest may exacerbate this shortage. Net long positions and ETFs for silver have started to rise, with signs of bottoming out in net inflows of silver in China and India, increased trading activity, and high premiums being maintained UBS pointed out that the role of silver in the transition to green technology and renewable energy will further boost the market's long-term demand for silver.
In the medium term, we expect the demand for silver in the solar energy industry to continue to grow, offsetting potential weakness in other industrial applications.
We anticipate that the demand for silver in the solar energy industry will eventually account for over 20% of total consumption, compared to only around 5% a decade ago.
Although higher and more volatile prices may weigh on physical demand, this impact is likely to be offset by increased investor interest. UBS noted that many investors are attracted to silver due to its relatively low price, correlation with gold prices, and higher volatility, providing trading opportunities