Silver to outperform gold prices in 2021: ABNAmro

Gold is still a crowded trade! 

Georgette Boele, Senior Precious Metals Strategist of ABNAmro said, “Silver to slightly outperform gold prices in 2021!”  Earlier ABNAmro released our Gold outlook. The stars are aligned for gold prices but some cracks are appearing. Still they expect prices to rise in 2021 on lower US real yields and a weaker dollar. The caveat is that long gold is still a crowded trade. 

For the same reasons ABNAmro also expect silver prices to rise. Silver tends to profit from higher gold prices as they are both bought as an investment, as a safe haven (gold more than silver), and for jewellery. Silver has another interesting dynamic. Silver prices tend to outperform gold prices if investors are more optimistic about global growth and trade, because silver has a substantial industrial demand component.

Indeed silver prices strongly outperformed gold prices in 2020 for this reason and because silver was relatively cheap. 

This wiped out four years of gold outperformance. The gold/silver ratio dropped from 126 on 18 March to just above 71 at the end of 2020. This raises the question if silver is still able to continue to outperform gold in 2021. 

ABNAmro think so, “We expect a further recovery in the industrial sector, a lower US dollar and lower US real yields. But it could be a bumpy ride, for two reasons. First, silver (like gold) is now a crowded. 

ETF positions in silver stand at an all-time high (see graph on the right below). Some position liquidation could result in considerable price weakness. Second, liquidity in silver is lower than in gold and thinner liquidity results in larger moves if they come. In short, we are positive on silver as long as silver prices are above the 200-day moving average (now at 21.8), and wait for price weakness to position for higher silver prices.