At UBP, we think that silver is set to rise substantially over the coming weeks and months, reflecting large global inventory shifts and an increasingly compelling valuation profile.
Since the US presidential election in early November, silver has experienced a wild ride. In the immediate aftermath of US President Donald Trump’s election victory, silver fell from levels of around USD 34.50 per oz to lows of around USD 29.00 per oz. The initial decline reflected portfolio reallocations by the hedge fund and CTA (Commodity Trading Advisors) community due to the surge in the USD and the rise in long-end US bond yields. Silver has since recovered to levels of around USD 32.50 per oz. There are several drivers behind its recent rise.
First, gold prices have risen to new all-time highs, and silver rose in tandem, as its historical beta to gold kicked in. Second, investors began stockpiling physical silver in the US ahead of the potential imposition of a new US tariff regime. This process involves taking bullion from London and other exchanges and placing it in the US. The decrease in the LBMA (London Bullion Market Association) free-float inventory means that there is now a lower quantity of physical silver available for the rest of the world, which has resulted in the rise in prices. We think that this will lead to further price increases in the coming months given that the physical silver market continues to illustrate a sizeable supply-demand deficit.
We note that manufacturing PMI (Purchasing Managers Index) data have started to improve around the world, and this is a benign development for silver, given its use in electronic and industrial goods. The upshot of this is that improved industrial demand could become a big driver of higher prices over the remainder of the year. Consumer demand is likely to remain strong in Asia, and especially in India, following last year’s decision to reduce government import duties on both gold and silver.
Monetary drivers
The gold-silver ratio shows that at current market prices, it takes around 90 ounces of silver to buy one ounce of gold. This is an incredibly elevated level – the historical average is around 65 ounces – and it implies that silver is materially undervalued compared with the yellow metal. Silver would have to trade higher to levels of around USD 45 per oz to see a return towards the historical gold-silver ratio.
When the gold-silver ratio has traded around its current level in the past, it has subsequently resulted in material silver outperformance in the following years, with annualised gains of around 8% on average. At the LBMA’s industry meeting in late 2024, the consensus among market participants was that silver would rise to levels of around USD 45 per oz in 2025, giving considerable upside from current levels.
We note that investor positioning is by no means stretched, leaving plenty of room for both retail and institutional investors to increase their silver exposures in the weeks and months ahead. The bottom line is that the stars are aligning for a substantial silver price rise.
