Silver looks set to outperform gold in the second half of the year as strong investment demand compensates for a slump in industrial demand, says Eugen Weinberg, commodities strategist at Commerzbank.
“Silver weakened in the second half of 2008 not only in absolute terms, but also relatively to gold as a result of its more widespread industrial use – but has recovered noticeably since the beginning of the year,” he said. “The price of silver is currently about 9.5 per cent higher than at the start of 2008.” By contrast, gold is slightly lower.
Mr Weinberg notes that a sharp rise in investment demand for silver has largely gone unnoticed. “The largest silver exchange-traded fund, iShare, now has a stock of just under 8,300 tons. Overall, silver inventories at exchange traded funds total around 10,000 tons.”
He also says interest in silver coins is remarkable. “The high demand for the American Silver Eagle is probably due to it being a more affordable purchase for the general public than its gold counterpart.”
Mr Weinberg says a tight market is also being caused by the supply side, because mining production, which accounts for around three-quarters of total silver supply, will at best stagnate and possibly even decline.
“After a weaker second quarter we expect silver prices to rise to $16 an ounce, from current levels of around $12. We also see more scope for the price to rise than to fall.”
