Silver will continue to rise on strong demand, may hit Rs 57k in 2H CY20

In the futures market, silver for July delivery touched an intraday high of Rs 71,570 and a low of Rs 71,257 per kg on the MCX.

Sakina Mandsaurwala

Gold prices traded near their new high while silver outperformed the yellow metal and rallied 4 percent last week. A weaker US dollar is acting bullish for precious metals prices.

Base metals prices are near multi-month highs on upbeat Chinese equity market and strong economic data. Supply curtailment and a weaker dollar are also supporting metal prices. All the base metals have shown significant performance by rising almost 4 percent each last week.

Crude oil prices halted the upside move the previous week after International Energy Agency said global oil demand should rebound in the coming quarter but warned that the recovery could be hindered by the accelerating number of coronavirus cases, risking our market outlook to the downside.

Silver prices have shown a sharp recovery of 63 percent after making a 10-year low in March 2020. Silver has gained importance as an investment avenue during the first half of 2020. Silver-backed ETFs have posted record gains this year.

Looking at the gold-silver ratio, it fell from a ten-year high of 127 in March and stood at 96.5 in July 2020. These levels are still very high and suggest an upside move in silver prices. According to Silver Institute, global mine production could fall by 7 percent in 2020 on the temporary shutdown of operations due to COVID-19 outbreak.

The rising investment inflows into silver are likely to continue in the second half of 2020. We believe silver as a safe-haven asset is undervalued in comparison with gold.

The massive liquidity injections leading to rising US Federal Reserve balance sheet with exceptionally low interest rates by the global central banks will put a strain on the US dollar and boosting dollar-priced commodity prices in the second half of 2020.

The falling gold-silver ratio and unprecedented monetary easing will prompt a strong upside in prices. Therefore, we expect MCX silver prices to trend higher towards Rs 55,000-Rs 57,000 in the second half of the year. Currently, the MCX silver is trading at Rs 51,300 per kg.

(The author is Commodity Analyst at Narnolia Financial Advisors Ltd.)

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