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In 2024, silver is growing two times slower than gold, and the gold/silver ratio has jumped to 88, with the historical average of 67. Can the white metal catch up? Let’s discuss it and make a trading plan for XAGUSD.
Six-month fundamental forecast for silver
“Don’t try to catch falling knives,” they tell those who want to buy an asset that has weakened too much. Is it worth buying an asset that’s trading extremely high? The S&P 500 has set 22 record highs in 2024 and continues rallying. Conversely, the Bitcoin’s pullback has been painful. Unsurprisingly, gold’s new peak at around $2,250 makes investors doubt. They still have an alternative — silver. The white metal has consolidated for a long time and is now ready to trend.
Silver dynamics
Source: Bloomberg.
In contrast to gold, silver is actively used for industrial purposes, so the acceleration of economic growth favors the white metal. Atlanta Fed’s leading indicator signals a 2.1% expansion of the US GDP in the first quarter. The value is less than 3.4% in October-December, but it’s still a good result. An economic recovery in China and the eurozone will only fuel the XAGUSD’s rally.
It’s clear now why the Silver Institute expects demand for silver to rise to 1.2 billion ounces in 2024, the second-best result on record. The increased interest in the analyzed asset in India, which imported 3 million tons in January-February, is reminiscent of the history of gold as increased demand in the yellow metal also has Asian roots.
Also, a 25% reduction in silver production in Mexico and Peru compared to 2016 levels drives the market into another deficit, which is a weighty argument for buying the XAGUSD.
At the same time, silver used to serve as money, just like gold, so the XAUUSD and the XAGUSD react to central-bank policies. Theoretically, the USD’s strengthening amid fewer monetary expansions by the Fed expected by markets in 2024 is supposed to put pressure on precious metals. But in fact, Forex currencies are playing the Weakest Link game. Rate cuts are weakening currencies worldwide, and precious metals exploit that.
On the other hand, silver growth is not driven by record central-bank buying amid de-dollarization, in contrast to gold. Regulators are moving away from the greenback and treasuries, replacing them with gold amid the formation of a bipolar world divided into West and East. As a result, the gold/silver ratio has jumped to 88, much higher than the historical average of 67. The WGC doesn’t expect central banks to repeat the 2022-2023 records, so the ratio will likely decline.
Gold/silver ratio trends
Source: Bloomberg.
Six-month trading plan for silver
Opening long positions in the XAUUSD could be risky after such an impressive rally, as the odds of a drastic pullback will increase while the asset moves upward. Silver can be a good alternative as the global economic outlook and demand for physical assets improve and fiat currencies weaken worldwide amid central-bank monetary expansions. I expect the precious metal to grow to $26.5 and $29 an ounce in 3 and 6 months. My advice is to buy the XAGUSD.
Price chart of XAGUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
