Kitco News) May is looking great for silver as the metal is outperforming its complex with more gains still in store, according to Orchid Research.
Silver prices are off to a solid rally after being left out of the gold price party in Q1. Spot silver has been even outperforming spot gold this month, up 6.7% since the beginning of the month while spot gold is up only 2.5%.
“We continue to favor silver over gold in the near term for at least three reasons. First, the silver price is relatively cheaper than the gold price judging by historical standards. Second, its positioning is cleaner (i.e., less crowded) than gold. Third, the re-opening of the economy could result in a rebound in industrial activity and therefore, a pick-up in silver consumption considering that 50% of annual silver supply is consumed by the industrial sector,” Orchid Research summarized in an Alpha Post on Wednesday.
In terms of price projections, Orchid Research is looking for a run up to $18 per share for the Aberdeen Standard Physical Silver Shares ETF (SIVR) in Q2. At the time of writing, SIVR was trading at $15.31, up 1.26% on the day. In the meantime, spot silver was trading at $15.83, up 1.67% on the day.
In its post, Orchid Research paid special attention to the relationship between silver and U.S. real rates, setting that in contrast to gold, “silver, in our case SIVR, responds more to short-term US real rates (e.g., the 5-year US TIPS yield) than long-term ones (e.g., the 30-year US TIPS yield).”
“The tightest relationship is with the 5-year U.S. TIPS yield, with an R-squared of 0.31, while the lowest is with the 30-year U.S. TIPS yield, with an R-squared of just 0.16,” said the post. “In this regard, SIVR is in a relatively more precarious state than gold considering that the recent rebound in U.S. real rates has been concentrated on the long end of the curve.”
In terms of the speculative positioning in silver, there is still a lot of room for buying, Orchid Research noted.
“Speculators cut by the equivalent of 403 tons their net long position in COMEX silver in the week to May 5, according to the CFTC … The net spec length is at just 17% of open interest, markedly below its all-time high of 57% of open interest. This suggests a very light positioning, meaning there is plenty of room for additional speculative buying once sentiment shifts positively,” the post said.
Also, ETF demand for silver is projected to rise in Q2, which would have a positive impact on prices, Orchid Research added.