A recent report released by Bank of America indicates that although the silver market still has potential for growth, the gold-silver ratio is near historical highs, suggesting that it may be difficult for silver to outperform gold in the short term. Analysts point out that the gold-silver ratio is currently close to 92, the highest level in two years, while the historical average of this ratio is around 60, indicating that silver's value remains relatively low compared to gold.
Last week, Bank of America raised its gold price forecast, citing strong market demand, especially from various investors continually seeking gold. However, the bank's outlook for silver is less optimistic. Although industrial demand could keep silver strong, analysts warn that silver's performance may not surpass gold, particularly amid ongoing central bank gold purchases.
The bank also notes that the persistently high gold-silver ratio might suggest that silver prices may not follow gold's lead as closely as before. Traditionally, in a precious metal bull market, silver typically outperforms gold due to rising inflation, falling interest rates, and declining real yields. However, this rally is different, primarily driven by central bank demand for gold, especially from emerging market countries concerned about the risks of traditional safe assets like the US dollar and US Treasury bonds.
Bank of America analysts further point out that although gold and silver have shown similar trends over the past 30 years, there is nearly no cointegrated relationship between them, meaning investors should not expect the gold-silver ratio to return to its historical average. They specifically mention that the gold-silver pair has been cointegrated only 20% of the time in past tests, indicating that price trends will not always be synchronized.
While the cointegrated relationship between gold and silver has strengthened after several market crises in the past, it has gradually weakened following the global pandemic in 2020 and the outbreak of the Russia-Ukraine conflict in 2022. Bank of America believes that with increasing global economic uncertainty, especially against the backdrop of the narrowing US fiscal and trade deficits, gold prices may continue to rise, while silver's performance might remain constrained by industrial demand.
Nevertheless, Bank of America remains optimistic about silver's prospects, anticipating that its price will be supported by continued growth in industrial demand. Although silver is unlikely to surpass gold, it will still see strong demand in the coming years, particularly as countries worldwide move towards diversified asset allocation.
