Silver’s situation is complex but prices could hit $40 by summer, $50 by year-end

NEW YORK (April 28) Silver has struggled to make meaningful gains despite gold’s sustained rally to fresh all-time highs. But while trade tariffs have muddied the waters and some correlations appear broken, some analysts still see the gray metal making big gains in the coming months.

Bob Haberkorn, a senior commodities broker at RJO Futures, said he believes that big moves are coming for silver prices, and it’s only a matter of when.

“I really like the upside a lot in silver,” Haberkorn told Kitco News on Friday. “I was even looking today at the option avenue to get some options on for clients, but they're so expensive right now because everyone's thinking the same thing. With the volatility, putting futures on here, you're going to have to withstand some significant moves, whether it be a dollar, two-dollar drops the next day.”

Haberkorn said that with silver just below $33 per ounce, the gray metal looks pretty attractive. “That's why I was looking for some options, but they're just too expensive right now, you’ve got to go pretty far out,” he said. “But I like the upside on it. I like just being able to find a spot to get in and hold the position for more upside to come, because that ratio [between gold and silver prices] right now is just so out of whack.”

But Haberkorn doesn’t expect the gold:silver ratio to return to its historical mean anytime soon. “I would not be putting trades on to expect that spread to come back to normal historical levels, because that can take a long time, and a lot of things are broken right now with this move up in gold,” he said. “The platinum:gold spread trade from eight, nine years ago still hasn't moved back into line. If anything, it's gotten worse, so if you're trading to play the historic ranges on these spread differences, you might be in it for the long haul, especially given the market circumstances.”

“But gold being at $3,500, with talk of it going up to $5,000 here, this was crazy talk a year ago, but it's definitely a possibility right now,” he added. “I think just that alone will bring silver higher. Silver to me is still undervalued right now in relation to gold and what's going on.”

Haberkorn believes silver prices are poised to gain 40% or more in the medium term. “A realistic target for silver is probably closer to $50 at some point this year,” he said. “And I think the move's going to happen sooner than later. I think you're going to see a move in the short term to $40, and $50 by September.”

And even if the gold:silver ratio doesn’t return to its long-term historical average in the 60s, Haberkorn believes it could still outperform gold the way it has in the past.

“It's possible,” he said. “You wake up one morning and it's up $3, and it continues to run. It's very possible. But realistically, silver getting to $40 is not that crazy of an idea, and I think it could happen between now and the middle of the summer.”

“$50 silver is also not crazy talk,” he added. “But for it to do that, gold's going to have to continue moving higher.”

Kevin Grady, president of Phoenix Futures and Options, said the prospects for silver in the current environment are more difficult to calculate given that much of its demand comes from industry, which is facing enormous uncertainty from the trade war. But he said there are a few other factors holding silver back relative to gold.

“The symbiotic relationship between gold and silver is always there,” Grady said. “But I just don't think people are running to silver. And one of the reasons why people don't run to silver, and you also haven't seen a lot of silver moving in like you did in the United States, is silver is heavy. Silver is very expensive to move; just look at the contract size. Physical silver is a lot more cumbersome than gold.”

Grady said silver also faces a circular problem that gold doesn’t: potential buyers are waiting for others to show sustained interest before they jump in themselves.

“People want to see the move, that people are buying it,” he said. “Regardless of how many people say, ‘I'm buying gold because it's going to be the next thing, wave of the future,’ they're buying gold because I was up 17%, 20%, and equities are getting crushed. It's all based on return.”

“If they were seeing 20% moves in silver, they'd be buying silver.”

Silver prices are fluctuating around the key $33 per ounce level on Monday, last trading at $33.061 for a loss of 0.12% on the session.

But even with silver above $33, gold’s relative gains mean the gold:silver ratio is still well above 100, last trading at 100.937 and up 0.65% on the daily chart.

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