ABN Amro expects higher silver price

According to ABN Amro, there is a good chance that the silver price will rise in the next two years. In a New report analyst Georgette Boele writes that the precious metal has been punished harshly this year, but that the future looks favourable. She expects the demand for silver to increase in key markets such as China and India.

Boele also expects a recovery in the Indian rupee and the Chinese yuan, which will encourage consumers to buy more silver. In addition, the outlook for the US dollar, which precious metals such as gold and silver usually benefit from, is deteriorating.

Silver price under pressure

The Silver price has fallen almost 9% since the beginning of this year, significantly underperforming other precious metals. According to Georgette Boele, the precious metal is suffering from a stronger dollar and the interest rate hikes of the US central bank. The price of the Chinese yuan also fell, making it more expensive for Chinese consumers to buy silver. The negative sentiment towards silver is also reflected in the futures market, where speculators hold a net short position. This means that they expect a price drop rather than a price increase.

According to the ABN Amro analyst, these negative factors will reverse in favor of precious metals in the foreseeable future. For example, the bank expects the value of the dollar to fall. Yields on government bonds will also go down, according to the bank, which could benefit silver. A stronger yuan and rupee will boost the demand for jewelry, ABN Amro writes in the report.

Silver price shows a strong correlation with the yuan this year / Speculators are very negative on silver (Source: ABN Amro)

Positive outlook for silver

When sentiment in the silver market reverses, a rapid price increase could follow, analyst Boele expects. If investors return to bullish on the precious metal, speculators will have to hedge their short position. To do so, they have to do a lot of Buy silver, which could see the price break above the 200-day moving average.

According to the bank, silver is currently cheap and its upside potential is much greater than its downside potential. ABN Amro expects the price of the precious metal to be at $18 by the end of next year and $20 per troy ounce by the end of 2020.

Precious metals price targets (Source: ABN Amro)