Silver prices have reached two-month highs of $24 per ounce on BullionVault’s latest charts, following underwhelming figures on the latest New York manufacturing index and inflation spiking to seven per cent in the US over the past week.
The headline index slumped into negative territory for the first time since October 2020, reflecting both Omicron’s short-term hit to business conditions and a decline in production levels.
Rupert Rowling, market analyst at Kinesis Money, argues the latest report has potentially shifted investor behaviour and market sentiment towards silver.
He said: “Silver is catching the eye. Breaking through resistance at $23 an ounce has seen a rush of new buying with silver now marching up towards $24. The spike was triggered by the New York Empire State Manufacturing Index which rocked markets by turning negative for the first time in 20 months, sparking a rush of traders to unwind short positions on the metal.”
Speculating on the precious metal’s future prices, the analyst was curious to see if it would sustain its revived performance levels or if it would fade like a meme-stock after a flurry of initial interest.
Rowling added: “With silver continuing to gain sharply this morning, the market will be following price moves closely to see if this is just a flash in the pan or the start of a sustained push, bringing back memories of last year’s WallStreetBets-inspired squeeze on the metal.”
While gold is typically considered as the ‘flight to safety’ asset for investors amid market disruption and volatility, expected interest rate hikes across developed markets including the US are likely to limit price rises in the precious metal.
Gold prices have been treading water at $1,820 per ounce, despite the attractive inflationary environment.
By contrast, silver appears to be catching the eye of investors, particularly at its comparatively low prices compared to gold.
Rowling described gold as being “stuck between a rock and a hard place,” referring to expected interest rate hikes across developed as a “a headwind for gold” that made it less favourable than alternative hedging options.
Alongside an increased interest in silver, he argued if macroeconomic conditions meant gold failed to provide “any yield to investors”, they would pivot to other “yield-bearing safe assets such as bonds.”
Commerzbank acknowledged the price surge has allowed silver to gain some ground on gold, with the gold/silver ratio has dipping below 77.
Nevertheless, analyst Daniel Briesemann was less certain about the reasons for its current price surge, which he felt were perhaps being overstated.
He said: “Silver is making further small gains this morning to trade at its highest level in almost two months. We have not been able to identify any news to explain yesterday’s price surge.
Briesemann also argued silver was undervalued and was sceptical of its future prospects in the market.
In the investor’s note, he concluded: “By historical standards, however, silver is still undervalued as compared with gold. We see catch-up potential for silver, though as with gold we do not expect any sustained price rise for silver ahead of next week’s federal reserve meeting.”
Meanwhile, some analysts were predicting a revival in gold prices, with silver’s rebound no more than a honeymoon period for the metal.
Craig Erlam, senior market analyst at OANDA said: “Gold is marginally higher again after the easing over the course of the last week. The yellow metal is continuing to struggle around $1,833 which has been a surprisingly strong level of resistance over the last six months. But support is returning after it came close to $1,800 so a break to the upside remains a strong possibility.”