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Silver's resurgence: Bank of America predicts bright future amid market volatility

Silver's resurgence

Although the price of silver remains in a correction phase and is currently around $30 per ounce, a growing number of analysts remain optimistic about the prospects of this precious metal. Among the optimistic voices is Bank of America, which sees strong potential in the silver market, particularly in the mining sector. This sentiment comes despite the current volatility and the fact that silver prices have struggled to break through higher thresholds recently.

Analysts believe that the fundamental aspects driving silver's value, such as its dual role as both a precious and industrial metal, will continue to support its price in the long term. The unique properties of silver, including its conductivity and reflectivity, make it indispensable in various industrial applications, especially in technology and renewable energy sectors.

On Wednesday, the price of silver increased by 0.74% to $29.76 per ounce, continuing its rebound from recent sessions. This upward movement is part of a broader trend seen over the past few weeks, where silver has demonstrated resilience despite global economic uncertainties. Market participants have noted that this increase follows a period of consolidation, where prices remained relatively stable after previous declines.

At the same time, gold, often seen as a direct competitor to silver in the precious metals market, fell by just under 0.1% to $2328. This divergence highlights the different dynamics at play in the markets for these two metals. While gold is primarily viewed as a hedge against economic and geopolitical instability, silver's price is more closely tied to industrial demand.

Michael Widmer, a precious metals analyst at Bank of America, predicts that silver prices will rise to $35 within the next two years, despite recent declines. His forecast is based on a comprehensive analysis of market trends, economic indicators, and the potential for increased industrial use of silver. Widmer points out that silver's recent price corrections are a natural part of its market cycle and do not undermine its long-term potential.

In the short term, silver is showing resilience, maintaining strong support at the 50-day moving average. This technical indicator is closely watched by traders as it helps identify the underlying strength of an asset. The fact that silver has held this support level suggests that there is sustained buying interest at current prices, which could pave the way for future gains.

For the past few years, gold has been the preferred asset perceived as a safe haven for investors looking to hedge against geopolitical risks. This preference has been driven by a series of global events that heightened uncertainty, including trade tensions, political instability, and most recently, the COVID-19 pandemic. Gold's ability to retain value in turbulent times has made it a go-to asset for risk-averse investors.

However, Bank of America believes it is now silver's time to shine. The bank's analysts argue that the factors which have traditionally supported gold prices are now increasingly applicable to silver. Moreover, silver's additional industrial applications provide it with a unique edge, as it stands to benefit from both investment and industrial demand.

"Silver has underperformed gold due to weak industrial demand. As the global economy recovers, the white metal should start to perform better," said Lawson Winder from Bank of America. Winder's assessment is based on the expectation that as economic activity picks up, the demand for silver in industrial applications will increase.

Silver is a critical component in many manufacturing processes, including electronics, solar energy, and automotive industries. The recovery of these sectors post-pandemic is likely to drive silver demand higher. Winder also notes that the transition towards greener technologies and renewable energy sources will further bolster silver's industrial use, creating additional upward pressure on its price.

Winder also highlighted that the increasing use of silver in the new generation of solar panels could boost demand. This trend could attract more investors, creating a positive feedback loop that might drive the metal's price higher. The adoption of solar energy is accelerating globally as countries strive to meet their climate goals and reduce carbon emissions.

Silver's superior conductivity makes it a preferred material for solar panel production. As the solar industry expands, the demand for silver is expected to rise significantly. This increase in industrial demand could prompt investors to take a more favorable view of silver, leading to higher investment inflows and further price increases.

In light of these positive trends, Bank of America has reaffirmed its buy recommendation for silver mining stocks. The bank's top picks are Pan American Silver and Wheaton Precious Metals. These companies are well-positioned to benefit from the anticipated increase in silver demand. Pan AmericanSilver, one of the largest silver mining companies, has a diverse portfolio of assets and a strong production outlook.

Wheaton Precious Metals, a leading precious metals streaming company, offers investors exposure to silver without the operational risks associated with mining. Bank of America believes that these companies are likely to see significant gains as silver prices rise, making them attractive investments for those looking to capitalize on the expected bull market in silver.

Although silver has significant potential as an industrial metal, Winder emphasized the need for increased investment demand to drive prices up. Despite holding steady, silver has not made a decisive move higher recently, partly due to weak investor interest. This lack of interest is evident in the relatively low levels of investment in silver-backed financial products compared to gold. To realize its full potential, silver needs to attract more investment capital. Winder suggests that this could happen as more investors recognize the value proposition of silver, especially in the context of a recovering global economy and increasing industrial demand.

Winder noted the lack of interest among assets managed by physically backed ETFs, as well as low trading volumes on the Shanghai Gold Exchange/Shanghai Futures Exchange and U.S. coin purchases. These indicators suggest that investor engagement with silver remains muted, which is a headwind for price growth.

However, this could change if the market dynamics shift. Increased publicity around silver's industrial uses and potential for price appreciation could draw more investors to the market. Additionally, any geopolitical or economic developments that heighten uncertainty could boost demand for silver as a safe-haven asset.

Nevertheless, he pointed out encouraging signs in commercial demand, which could eventually attract investors. This aligns with Bank of America's optimistic outlook for silver in 2024. The bank believes that as commercial demand for silver strengthens, it will create a foundation for higher prices. This, in turn, could attract more investors, creating a virtuous cycle of rising demand and prices.

The overall outlook for silver is positive, with analysts forecasting continued growth in both industrial and investment demand. As these trends play out, silver is poised to become an increasingly important asset in the portfolios of investors looking for both stability and growth potential.

silver trading
XAG/USD daily chart, MetaTrader, 20.06.2024

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