Silver expected to outperform gold in new year, price likely to rise 14%

Samvat 2075 has proved to be good for both gold and silver with the two precious metals giving 21.3 and 22.4 per cent returns, respectively. However, the demand for both the metals took a hit this Dhanteras and Diwali because of high prices. According to data from the Indian Bullion and Jewellers Association (IBJA), the demand, which was 40 tonnes last year around this time, has shrunk to 30 tonnes, despite some pick-up in demand in the last one week.

In the new year, however, silver is expected to glitter more than gold. While IBJA expectes the average price of gold to rise 8 per cent in the next year, Metal Focus said, “silver is projected to see a stronger 14% lift to $18.50 next year, although this will only represent a six-year high.”

According to Metal Focus' annual report Precious Metals Investment Focus 19-20, published just two days before Diwali, "the average gold price is forecast to rise by 8 per cent in 2020 to $1,520, an eight-year peak. However, Silver is projected to see a stronger 14 per cent lift to $18.50 per ounce next year, although this will only represent a six-year high.”

Neil Meader, Research & Consultancy Manager at Metals Focus, said, “macroeconomic backdrop will become increasingly favourable for investment in gold in the coming months. This includes an end to sustained US dollar strength, further rate cuts by the Fed, more accommodative monetary policies fro other major central banks, and the continued rise of negative-yielding debt.”

He cautioned, "in spite of growing risk aversion this year, equities have remained near all-time highs and, seemingly, most investors are still not betting on a sustained correction.” However, this investor sentiment will eventually change in favour of defensive assets, including gold.

Silver, however, follows wider fundamentals as a large part of it is produced as a by-product and it has 55 per cent usage in industries. Hence, Metals Focus believes that a global economic slowdown and its negative impact on base metal prices will weigh on silver over the next 12 months or so. But according to Meader, silver has significantly underperformed in last few years compared to its all-time high and hence, “on balance, silver is likely to benefit more from rising investment inflows into gold.” Meader said, “In early September 2019, gold was only 12 per cent below its all-time high, while silver remained far below its $50 peak; given silver’s higher volatility, this leaves room for silver to outperform gold.”

Silver production is again expected to reach its previous peak and supplies will be higher. However, its industrial demand and jewellery off-take are both forecast to post small gains over 2019-20.

In India, silver has been a preferred asset for traders and stockists. Chirag Thakker, Director, Amrapali Group Gujarat, which is among largest silver importers in India, said, “If we compare gold to silver in India, silver's market demand has recovered faster in terms of discount to premium (in last few months). Going forward, it will surely perform better than this year as silver consumption has further increased in industries. Silver jwellery demand is also set to grow much faster than gold as silver prices have bigger room to appreciate in terms of prices.”