FxWirePro: Silver lining opportunities for investors and traders in silver and gold among bullion space

Amid lingering concerns global slowdown, investors seem to have shifted their portfolio preferences into bullion market space as safe havens.

In this space, gold and silver as particular asset avenues, the spot silver prices averaged $20.01/oz in July, a MoM increase of nearly 15%. Average monthly prompt gold prices also increased by nearly 5% but as silver’s return tripled gold’s on a percentage basis the gold-to-silver ratio dropped to average around 67:1 throughout the month, down from 74:1 in June.

Not only did industrial silver fabrication demand growth ramp up over the past couple months, essentially removing any vestiges of a fundamental headwind in the near-term, but silver’s higher volatility propelled it to soar as the macro environment for precious metals turned into a bullish gale last month.

From a fundamental perspective, China installed 20 gigawatts (GW) of solar capacity in 1H16, triple the amount installed over the same time in 2015, bringing their total photovoltaic (PV) capacity to 63 GW.

To feed this demand, Chinese production of PV modules jumped nearly 38% YoY in the first half of the year to 27 GW, in turn contributing to growth in Chinese silver powder imports which bounded higher by 40% YoY in June to a six-month high.

In hindsight, we previously put too much forecasting weight behind silver’s status as less of a pure-play safe haven asset relative to gold and did not nearly discount enough its higher beta to gold given its lower liquidity, especially during gold bull markets.

In summary, marking our price forecasts to market and adding more predictive weight to silver's historical outperformance during precious bull markets has resulted in upgrades to our silver price forecasts.

Now, for the next roughly year-and-one-half, we believe silver will outperform gold during periods of positive QoQ gold returns and vice versa during periods of negative QoQ gold returns. This equates to a constructive forecast throughout 4Q16 and 1Q17—a quarter in which we forecast prices average $22.04/oz—in line with our view on gold.

Silver futures for September delivery eased 0.06% to $19.862 a troy ounce, while copper futures for September delivery rose 0.09% to $2.172 a pound.

Trade Recommendation Update: Stay short LME Dec’16 copper and long in gold and silver.

On a delivery basis, one can go long in mid-month futures for northward targets of 1384 and 1400 in the days to come.