Investing.com — remains an attractive asset for investors, driven by a mix of favorable macroeconomic factors.
According to analysts at UBS, silver prices could see a significant rally, with a potential increase of almost 20% over the next twelve months.
The report cites a combination of monetary easing, recovery in industrial demand and growing investor appetite for ETFs as key factors that could push up prices.
Currently, silver is hovering around $32/oz, supported by easing global monetary policy and a weaker US dollar.
The Federal Reserve’s recent decision to cut interest rates by 50 basis points has created confidence in the markets that real interest rates will fall further.
This environment of lower real interest rates is expected to stimulate economic growth and boost industrial demand for silver, which plays a crucial role in sectors such as electronics, renewable energy and medical technology.
At the same time, the weakening of the US dollar, a common consequence of falling interest rates, typically supports higher silver prices.
UBS predicts that this dynamic will push silver to new highs, possibly reaching $36-38/oz next year.
In addition to central bank influence, the broader recovery in global production will drive silver demand.
As production increases in various sectors, the need for silver in industrial applications is likely to increase, putting further pressure on prices.
UBS notes that this recovery in industrial activity, combined with a more favorable interest rate environment, could lead to greater inflows into silver-focused exchange-traded funds.
China’s economic policies are another critical factor in silver’s bullish outlook. The Chinese government has implemented a series of stimulus measures to revive the economy, which has been under pressure in recent years.
Given that China is one of the world’s largest consumers of silver, especially for industrial use, this policy could provide a strong tailwind for silver prices.
UBS believes that if these measures are successfully implemented and followed up by additional initiatives, they could significantly boost demand for commodities such as silver.
While silver has been trading in a range of $26-32/oz since the second quarter of this year, UBS expects this sideways move to give way to a broader uptrend.
The strategists foresee silver breaking out of this range and embarking on a more sustained rally, with a price target of $36-38/oz. The combination of interest rate cuts, monetary easing and rising industrial demand is paving the way for silver to reach these higher levels.
However, the analysts also warn that several risks could test their bullish outlook. A key risk is that the market has already priced in many of the Federal Reserve’s expected rate cuts.
Any unexpectedly strong economic data, such as a positive payroll report, could temporarily strengthen the US dollar, putting downward pressure on silver prices.
Moreover, while China has introduced numerous stimulus measures, not all of them have been successful in bringing about a meaningful economic recovery.
If consumer demand in China does not pick up, the rally in silver and other commodities could lose steam.
Additionally, speculative positions in silver futures remain elevated, and a lack of positive news could lead to a pullback in these positions, dampening the short-term outlook for silver.
“For investors who are less confident about a silver price rally, we believe selling the downside for a yield increase provides an alternative way to gain silver exposure,” the analysts said.
