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July 18, 2019, 2:08 p.m. EDT

Silver rallies to its highest in over a year, plays ‘catch up’ to gold’s gains

Silver may make a move toward $20/oz if gold climbs to $1,500 or more: analyst

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By Myra P. Saefong, MarketWatch


AFP/Getty Images
Silver has the potential to climb to $20 an ounce

Silver futures marked a fifth straight day of gains session gain on Thursday, for their highest finish in more than a year.

Tight supply concerns, along with strength in gold, may help lift prices for silver back to levels not seen since 2016.

“We were overdue for a rally in silver as the gold/silver ratio was sitting near historic highs,” said Chris Gaffney, president of world markets at TIAA Bank. “In short, silver had some ‘catching up to do’ as it was left out of the overall rally in precious metals during the first half of 2019.”

Silver’s most-active September contract /zigman2/quotes/210318636/delayed SIU19 -0.43%  settled at $16.198 an ounce on Thursday, up 22.7 cents, or 1.4%, for the session, the highest finish June 29, 2018, according to Dow Jones Market Data. The precious metal posted gains in each of the previous four sessions and trades nearly 6% higher so far this month.

Year to date however, silver based on the most-active contracts have climbed by 4%, underperforming gold /zigman2/quotes/210037406/delayed GCQ19 -0.39% , which has seen an 11% rise so far this year. Palladium futures /zigman2/quotes/210241589/delayed PAU19 -0.35%  have also seen an impressive 26% year-to-date rise.

Read: Platinum is a bargain hidden behind the rally in palladium and gold

Also see: Gold, palladium compete for the title ‘most precious metal

“Gold has a pretty good head start on silver during the first half of 2019,” said Gaffney, who does not expect silver to surpass gold’s overall performance in 2019. Silver, however, “will outperform gold over the remainder of the year,” he said.

The world’s silver miner, Fresnillo PLC /zigman2/quotes/203613035/delayed FNLPF +3.20%   recently cut its output targets for this year . It expects to produce between 55 million ounces and 58 million ounces in 2019, down from previous expectations for a range of 58 million to 61 million ounces. That fed concerns over tighter supplies and helped to lift the price of silver, said Gaffney.

Meanwhile, the gold to silver ratio had been at an “extreme level from a historical perspective,” with silver lagging gold significantly for many years, said Peter Spina, president and chief executive officer of GoldSeek.com. The ratio was several ounces from the 100 mark which means that it would take 100 ounces of silver to buy an ounce of gold. On Thursday, the ratio was at about 88 ounces of silver to one ounce of gold.

Gold’s gains so far this year have helped to “light a spark under the silver price and with many primary silver producers struggling at mid-teens silver levels, years of underdevelopment from exploration cutbacks to abandoning projects has created a perfect storm for silver to now revive in a bit way,” said Spina.

Near-term the key for silver will be if gold breaks above $1,450 an ounce, and if gold moves to $1,500 and above, it will send silver up to test its next technical level around $20 an ounce, he said. Silver futures haven’t traded at levels that high since 2016.

Also see: Global gold-backed ETF assets log biggest monthly rise in 7 years

The really big gains will be from the silver miners like First Majestic Silver Corp. /zigman2/quotes/202373250/composite AG +5.11% , and opportunities have been showing up in other small capitalization miners like Fortuna Silver Mines Inc. /zigman2/quotes/202122859/composite FSM +5.25%  and Endeavour Silver Corp. /zigman2/quotes/202649204/composite EXK +5.04% , said Spina, adding that he has “been accumulating many of these juniors over the past several months in anticipation of them doubling and much more as silver makes a move towards $20.”

He said gold and silver investors have not missed much of this rally, though in the short term the rally may be overextended when it comes to some miners. Over the coming months and year, however, Spina believes he sees “one of the best risk/reward [opportunities] in the gold/silver sector since I started buying juniors as a teenager, some 25-[plus] years ago.”

/zigman2/quotes/210318636/delayed
US : U.S.: Nymex
$ 17.08
-0.07 -0.43%
Volume: 15,506
Aug. 21, 2019 7:00a
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/zigman2/quotes/210037406/delayed
US : U.S.: Nymex
$ 1,498.80
-5.80 -0.39%
Volume: 320.00
Aug. 21, 2019 5:56a
loading...
/zigman2/quotes/210241589/delayed
US : U.S.: Nymex
$ 1,484.50
-5.20 -0.35%
Volume: 732.00
Aug. 21, 2019 6:58a
loading...
/zigman2/quotes/203613035/delayed
US : U.S.: OTC
$ 8.06
+0.25 +3.20%
Volume: 7,100
Aug. 20, 2019 2:27p
P/E Ratio
31.25
Dividend Yield
N/A
Market Cap
$5.94 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/202373250/composite
US : U.S.: NYSE
$ 10.50
+0.51 +5.11%
Volume: 3.71M
Aug. 20, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.14 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/202122859/composite
US : U.S.: NYSE
$ 3.81
+0.19 +5.25%
Volume: 2.37M
Aug. 20, 2019 6:30p
P/E Ratio
27.10
Dividend Yield
N/A
Market Cap
$610.26 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/202649204/composite
US : U.S.: NYSE
$ 2.50
+0.12 +5.04%
Volume: 2.55M
Aug. 20, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$343.69 million
Rev. per Employee
$93,194
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Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.

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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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