London: Weakening global economic growth, lacklustre demand and huge stockpiles mean silver prices are unlikely to join gold in rocketing to new highs, analysts say.
Silver and gold prices have traditionally moved together, with silver tending to outperform gold when the two are rising and fall faster when both are in decline.
But while gold prices surged 8% in June to a seven-year peak above $1,400 an ounce, silver managed only a 5% gain and remains well below recent highs.
Now around $15.25 an ounce, silver is the worst performing major precious metal this year and worth 93 times less than gold -- its lowest relative value since 1992.
Concerns over trade conflicts and a sputtering global economy are pushing investors towards precious metals, traditionally seen as safe assets to hold in uncertain times.
But unlike gold, more than half of silver consumption comes from industrial applications such as electronics and solar panels, and weakening economic growth is undermining the outlook for demand and dragging on prices, said INTL FCStone analyst Rhona O'Connell.
"I can't see why the ratio shouldn't touch 100," she said.
The gap between gold and silver has widened almost without interruption since 2011.
This has coincided with a switch by central banks to net buyers of gold from net sellers, analysts at Citi Bank said. And with central banks currently on their biggest gold buying spree in decades, Citi forecasts gold's lead over silver will widen further.
Demand has also lagged, with purchases of silver bars and coins for investment slumping to 166 million ounces in 2018 from 300 million ounces in 2013, according to consultancy Metals Focus – a huge decrease in a market with total demand around 1 billion ounces.
Investment demand in the United States dived to 44 million ounces in 2018 from 122 million in 2013 – with Metals Focus saying many small-scale investors hoarding silver as insurance against future risks curtailed purchases after the election of Donald Trump in 2016 reassured them the country was in safe hands.
Metals Focus expects a fourth consecutive surplus for the silver market in 2019, of 33 million ounces, and an average price this year of $15.60 an ounce, 1% lower than in 2018.
It said repeated surpluses have pushed identifiable above ground stocks of silver to nearly 48,000 tonnes (1.5 billion ounces) at the end of last year from around 40,000 in 2016, dragging on prices.
An influx of speculative investment into silver has failed to close the gap with gold.
Hedge funds and money managers turned positive in COMEX silver in June and holdings of the metal in exchange-traded funds (ETFs) have risen almost 20 million ounces since June 5.
Both ETF holdings and net positioning on COMEX remain below recent highs, however.
"The ratio being high is not on its own a reason why silver should rally. It needs a reason of its own," said Philip Newman at Metals Focus.
One such trigger would be if state authorities switched from monetary stimulus – which has increased the attraction of gold by keeping interest rates and bond yields low -- to spending on infrastructure to revive growth, said Ole Hansen at Saxo Bank,
Silver could end the year between $16.50 and -- if the gold/silver ratio does begin to fall -- as high as $17.50 an ounce, according to Hansen.
A collapse in global stock markets from record highs could also trigger a surge in demand for safe assets large enough to lift silver as well as gold, Newman said.
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