Is silver poised for a strong upward move?

Silver could be poised to benefit from a strong upward move, according to a report by ETF Securities, although some expect gold to outperform.

ETF Securities argues that increasing demand, such as a 17 per cent year-on-year jump in China, and falling supply means prices could be set for a strong upward move. 

The firm sees silver as a leveraged play on gold and expects investors to opt for this tactic, due to its above-ground scarcity in comparison to the yellow metal. 

Silver supply has declined in the past year, despite improvements in mining, after the recycling rate dropped to its lowest since 1999.

And last year, silver experienced an increase in demand from investors as total holdings in silver exchange traded products reached 623 million ounces – which is the highest year-end amount ever.  As of the end of April 2014, this has increased 1.4 per cent to 632 million ounces. 

ETF Securities  adds that silver is appearing cheap relative to gold and the price ratio between the two metals has reached the highest level since 2010.

The report reads: “For the few years prior the 2008 crisis, the gold/silver ratio hovered around 50. Since 2008, the ratio has reached a peak near 85 and low near 32. 

“With a median near 59, as the global economy continues to recover, the 50 area in the gold/silver is an area that is likely to be revisited in our view, with silver price upside the key driver.”

However, Capital Economics expects gold to outperform the grey metal in the coming months, even thoug gold is looking more expensive than silver by past standards. 

A note by the macroeconomic forecasting consultancy reads: “Gold has benefited more from safe-haven flows and demand from developing countries, while silver is more sensitive to industrial demand, which has been weak. 

“As such, we continue to see more upside for gold than silver, though the price of both should end the year higher.”