Goldman Sachs: Silver To Remain Soft Relative To Rising Gold
(Kitco News) - Goldman Sachs analysts do notlook for silver to gain ground on gold in the coming months, even though theyare bullish on gold itself.
The investment bank Tuesdayreleased a report maintaining its view that gold will climb toward $1,450 anounce by the end of the year even if real interest rates rise. However,analysts called for the gold-silver ratio to remain stable, meaning that silverstays at a historically weak level relative to gold.
The key difference in Goldman’s viewstoward the two metals is emerging-market investment demand, which they say isstrong for gold but not as major of a factor in the silver market.
The bank’s views on the preciousmetals were included in a report in which the investment bank described itselfas favorable toward the commodities complex as a whole.
Goldman called for thegold-silver ratio to remain around the current level of 80, meaning it takesroughly 80 ounces of silver to buy an ounce of gold. Goldman also reviseddownward its three-, six- and 12-month silver price forecasts to $16.80, $17.10and $18.10 a troy ounce from its previous forecasts of $17.80, $18.30 and$20.30.
“Silver continues to trade in the$16-17.50/toz range it has been stuck in over the past year,” Goldman said.“Meanwhile, the continued upward trend in gold has pushed the gold silver priceratio to 80, which is close to its highest level since the early 1990s.Silver’s underperformance was primarily driven by weakness in investmentdemand.”
Silver retail investment tends tocome from different countries than for gold, Goldman pointed out. Gold retailinvestment is dominated by emerging-economy nations such as India and China,while silver investment demand comes primarily from countries with developedeconomies. In the case of the latter, demand for precious metals has weakeneddue improving risk sentiment.
“In addition to this, silverindustrial demand levels remain low relative to mine supply, which is expectedto grow strongly over the next several years,” Goldman said.
In the longer term, Goldman said,silver’s supply/demand fundamentals should improve as industrial demand gets aprobable lift from substitution away from copper and gold. Also, silver minesupply growth should be restrained by the lack of recent investment into copperand zinc mines, which has ramifications for silver since the majority of minesupply is a by-product of mining operations for other metals.
“Over the near term, however, wedo not see a compelling case for silver to outperform gold because there is noclear catalyst for silver investment demand to recover, and industrial demandwill take time to catch up to mine supply,” Goldman said.
However, Goldman said it seesgold rising to $1,450 an ounce by the end of 2018 even if real interest ratesclimb, with the yellow metal drawing support from emerging-market demand.
“We remain bullish on the outlookfor gold,” Goldman said.
The bank’s report comes as themetal is falling in part due to a stronger U.S. dollar and prospects for higherU.S. interest rates. Treasury 10-year yields climbed above 3% last week for thefirst time since 2014.
Goldman noted that the “normalrelationship” would portend weaker gold as real interest rates (the differencebetween actual rates and inflation) rise.
“However, we would argue thatthis view misses the slower-moving, but equally important, effect of the trendsin global, and particularly EM, wealth,” Goldman said.
As emerging-market economiescontinue to recover in the aftermath of the financial crisis, purchasing powerhas improved in emerging-market nations. And that in turn supports gold demand,Goldman said. This has already shown up in accelerating emerging-market jewelrydemand in the last quarter of 2017 and monthly import data for China and Turkeyin January and February, Goldman continued.
“Accordingly, we continue toexpect gold prices will move gradually higher, reaching $1,450/toz byend-2018,” Goldman concluded.
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.