Silver fails to catch up with gold price rally. Can the white metal outperform?

Earlier this week, Gold hit its record high and crossed the Rs 60,000 mark. However, its counterpart and peer precious metal Silver has been unable to do so. Even after a decent rise in the near term, the white metal is struggling to breach the key psychological levels of Rs 70,000 per kilogram (kg).

Silver is currently trading a little above the Rs 69,000 mark, about 11 per cent below its lifetime high of Rs 77,949 per kg touched in August 2020.

Market participants believe that gold, which is widely considered a hedge against inflation, has been in demand after the fallout from banks like Credit Suisse, Silicon Valley Bank and others. But silver possesses industrial metal properties too and if recession fears continue to weigh, industrial demand will remain subdued.

Ravindra V Rao, VP-Head Commodity Research at Kotak Securities said that the recent financial crisis among the US and Europe banks and fears of contagion have led to a sharp decline in risky assets and inflows into safe-haven gold.

"The major reason for this underperformance is that almost half of the silver demand comes from the Industrial sector, which is not supposed to perform very well during times of economic stress," he said.

Market experts remain divided over the outperformance of gold over silver and vice versa. A few prefer the yellow metal, while others are going big on its white counterpart.

"Given the prospects of a deteriorating global economic outlook and aggressive central bank tightening and elevated inflation, we might see a hit to industrial demand, " said Rao from Kotak. "Chinese reopening calls for optimism but we have not seen any clear signs of robust demand rebound."

On the other hand, gold prices are going to have a double benefit from a looming economic slowdown and prospects of the Fed’s rate hike pause. Thus, we expect gold to outperform silver if the economic stress escalates, he said.

On the other hand, a few experts believe that investors should not chase the missed bus for gold and should look at silver at the current levels.  Silver is a very good bet at this point in time, said Navneet Damani, Head of Research Commodities & Currency at Motilal Oswal Financial Services.

"I think gold vis a vis silver, I will still put money in silver at this point in time," he said. "Our bias continues to remain positive and we have seen that silver has not performed in the last run-up or silver has not performed as gold has done," he added.

However, both analysts are positive on the silver and see a strong upside in the white metal in the coming days. They suggest investors accumulate it on dips.

Rao expects silver prices to perform well in the coming months. On the domestic front on MCX Rs 72,000 per kg would act as a hurdle and sustaining above them, it may go up to Rs 78,000-80,000 per kg, he said.

"We have been having a positive stance in silver for a long and we've been issuing reports targeting Rs 75,000 and gradually target towards Rs 84000 levels also," said Damani from Motilal Oswal.

"So, my stance would be that one could wait for a reasonable dip and once that happens, I want to start accumulating silver. The first target would be about Rs 80,000 and then followed by Rs 84,000. That's a clear 15 per cent to 18 per cent upside from the current levels," he said.

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