Silver Prices Set for Gains

Silver prices are poised for further gains in the coming months, driven by a combination of favorable macroeconomic factors and robust demand fundamentals, as per analysts at UBS in a note dated Monday.

Factors Supporting Silver Prices

A weaker U.S. dollar, improving sentiment across financial markets, and record-high gold prices have all contributed to a recent modest rebound in silver prices. UBS analysts suggest that long-term investors should consider increasing their exposure to silver, with a target price range of $36-38 per ounce.

The recent weakening of the U.S. dollar and a shift towards a more risk-on environment among investors have provided a supportive backdrop for silver. While much of the market’s focus has been on U.S. macroeconomic developments and the potential for lower interest rates, UBS analysts believe that silver offers more than just a play on U.S. economic news.

Industrial Demand and Growth

Despite recent weak manufacturing data from developed economies, UBS remains optimistic about the industrial demand for silver. According to UBS, “In our base case, industrial application demand should still expand by 50 million ounces this year, or close to 10% y/y“, driven by secular demand drivers such as the energy transition.

This growth is expected to be driven by long-term trends, including the global energy transition, which requires increasing amounts of silver for applications such as solar panels and electrical components.

Renewed Demand from China

Another positive factor for silver prices is the renewed demand from China. UBS notes that China has shifted back to being a net importer of silver, with net imports reaching 5.0 million ounces in July, up from 3.2 million ounces in June. The brokerage expects that China will continue to report positive net imports in the upcoming August trade data.

This renewed appetite for silver in China is partly driven by falling yields and expectations of further weakness in the Chinese yuan (CNY), which are likely to keep onshore silver price premiums elevated. As a result, silver imports into China are expected to remain strong, providing further support to global silver prices.

Future Outlook

UBS analysts also highlight the potential for increased demand for silver exchange-traded funds (ETFs) as U.S. economic outperformance, or “exceptionalism,” fades. Additionally, a recovery in manufacturing sentiment, which UBS anticipates in the coming months, could further boost silver demand.

Given these factors, UBS maintains a positive outlook on silver, advising long-term oriented investors to consider long exposure to the metal. The brokerage also suggests exploring selling price downside risks to generate additional yield, given the favorable demand dynamics and supportive macroeconomic backdrop.