The London Bullion Market Association (LBMA) has identified silver as the top performer among metals this year, considering that the commodity has garnered increased attention from investors.

Recently, the precious metal was up 20% in just three days, before correcting lower with a social media squeeze, global metal markets news agency Metals Daily CEO Ross Norman said during an LBMA webinar on February 4.

A lot of the driving force behind silver has been the investment demand, while for the better part of 2020, a big increase of over 8 000 t was seen in silver exchange-traded funds (ETFs) for the full year.

This momentum continued into January 2021, commented Standard Chartered Precious Metals Research executive director Suki Cooper, who noted that there had also been a continued build-up in retail interest.

“It’s been that surge in retail interest that’s really driven silver prices – so much so that we saw silver prices testing an eight-year high on [February 1].”

However, HSBC chief precious metals analyst James Steel said silver attracted a wider audience partly because it was more cost-effective than gold, and partly because “people understand silver better”.

“If you look at silver’s liquidity, it is thinner than gold’s but deeper than equities being pushed higher. Also, silver doesn’t have that same short positioning [as some of the other] equities did. That’s why we began to see the pullback,” he elaborated.

UBS precious metals strategist Joni Teves, meanwhile, noted that investors had been “friendlier” to silver, given its industrial properties, even before the recent spike. Even though this new interest would likely not immediately translate into higher prices, it was likely to occur in the medium to long term, she added.

Silver, however, does have the potential to outperform gold in an environment where industrial demand was expected to recover, Teves noted, adding that the social media trend also revealed “just how liquid” the silver market was.

Considering that silver was a well-supplied market, with more than a year’s worth of inventory, Cooper said some “tightness in the near term” could be expected if the retail industry started to unload.

Gold

Further, the outlook on gold remained bullish “but a shade less optimistic,” said Norman.

According to Steel, there was a strong correlation between gold-backed ETF buying and pricing, and another record level of ETF buying was unlikely this year.

Steel said gold would remain at elevated levels, but was unlikely to charge aggressively higher.

“We have enough there to keep the market supported, but how much higher we can go is questionable,” he said, noting that “it’s easy to forget that, historically, these are still very high prices”.

The dollar would continue to play an important role for gold, which could provide a trigger to lift prices higher, said Cooper.

“Gold’s strongest correlation is with the dollar,” she noted. “The bearish trend for the dollar is likely to resume, given the blue sweep. We are expecting greater fiscal spending, with inflation expectations ticking higher and real yields remaining negative.” (The “blue sweep” or “blue wave” refers to the US election outcome, with the Democrats having won the Presidency, the Senate and the House of Representatives.)

However, in the near term, consolidation is still the most likely outcome, Cooper said, noting that the physical gold market would remain key because it provided a cushion for prices when investor demand slowed.

“In India and China, we started to see demand starting to stabilise. For India, aside from high prices, one of the challenges was less interest on a general retail basis. Customs duty being cut . . . is very supportive and will help consumer interest to return in 2021,” she added.

Therefore, the physical demand for gold remained a weak spot in the outlook, Steel commented.

In its yearly report, also published on February 4, the LBMA said gold was expected to be subjected to a high level of volatility this year, with the widest forecasts predicting a high/low range of $1 192, compared with $780 in 2020.

With the gold market expected to be relatively tame throughout this year, the LBMA’s report reiterated the thoughts of the webinar discussion in that “all eyes [would] be on silver”.

Precious metals analysts expect silver prices to average $28.50/oz this year, an increase of 38% from the 2020 average price and up 8% from the average price since the first half of January.

Silver, however, is forecast to be the best-performing metal this year, but with a trading range of $38.50, nearly five times its range forecast last year.

Looking at the platinum group metalsmarket, analysts are expecting to see a reversal of fortunes between platinum and palladium, as analysts forecast that the platinum price will average about $1 131.50/oz this year, up 28.2% from the average price in 2020.