Silver is exploding, is $20 an ounce next? Analysts weigh in

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Silver prices exploded this week, trading above $19 an ounce level after jumping more than $1 in just five days. Analysts are now targeting $20 an ounce silver, but how soon?

The precious metal is being driven by similar things as gold — its safe-haven appeal — as well as increasing industrial demand outlook, according to analysts.

Silver had a spectacular Q2-2020, helped by optimism that the faster-than-expected economic recovery will continue to drive real rates lower and lift industrial and investor demand. The white metal outperformed gold by a factor of two, as it jumped some 33 percent over the previous three months,” TD Securities commodity strategists said on Wednesday.

On Thursday, silver hit its multi-month highs, with September Comex silver reaching above $19.40 an ounce overnight. At the time of writing, investors were taking some profits off the table as the September silver traded at $18.935, down 1.18% on the day.

Silver is following in the footsteps of gold as both precious metals have rallied this week, reaching new significant levels. As gold breached $1,800 an ounce, silver had breached $19 an ounce with precious metals bulls readying for more gains after a temporary pullback.

“Silver has risen in gold’s slipstream to $19 per troy ounce this morning; its highest level since September 2019. Silver has outperformed gold in recent days, causing the gold/silver ratio to drop below 96. It was still 99 two days ago. Gold and silver are also being lent tailwind by a weaker U.S. dollar,” said Commerzbank analyst Carsten Fritsch. 

Both gold and silver are enjoying increased buying interest from ETF investors, which is adding weight to the rally, noted Fritsch.

The increase in safe-haven demand is being boosted by the rising number of coronavirus infections in the U.S. as well as the U.S. Federal Reserve officials’ rising skepticism about the economic outlook, added Fritsch.

Geopolitical tensions are also rising, which is adding to silver’s safe-haven appeal.

“The situation is escalating in a political sense, too: now that China has implemented its security law for Hong Kong, more and more western countries are reviewing their relations with the former British Crown Colony and are thus on course for confrontation with China. The U.S. is thinking about imposing new sanctions on China, and is also questioning the Hong Kong dollar peg to the U.S. dollar. Apparently, the U.S. is considering limiting Hong Kong’s access to the U.S. dollar and excluding banks in Hong Kong from the SWIFT payment system,” Fritsch said.

Some analysts are already eyeing $20 an ounce for silver as the next target to be breached.

RBC Wealth Management managing director George Gero said on Thursday that volatility and higher prices point to a $20.00 silver. “Pandemic, protests, political and economic headlines, North Korea, China, tariffs, stock volatility, upcoming elections all added to reasons investors piled in,” Gero said.

Industrial demand is key

Silver even has the potential to outperform gold, TD Securities the strategists pointed out, citing a recovery in industrial demand.

“The industrial-precious silver could outperform — benefiting from both the positive precious metals environment and its industrial characteristics, at a time when its supply may remain constrained,” the strategists said on Wednesday.

TD Securities expects investment and industrial demand to keep rising and for the silver market to operate at “full or even above full utilization.”

Not only is the market for silver projected tighten, but investors seem to be unwilling to sell physical silver, which creates an additional constraint for physical inventory flows, TD Securities added.

“This creates an operational context in which holding physical silver is synonymous with holding ‘insurance’, thereby restricting flows of physical inventories. As inventory flows remain constrained, this environment could send prices far beyond our projections,” the bank’s strategists explained.

All of this means that silver could rise to $22.25 an ounce by the end of next year, according to TD Securities

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