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Silver prices faced difficulties due to the strength of the US dollar and speculative traders reducing their net long positions in the futures market.
Currently, speculative accounts hold net long positions of about 260 million ounces of silver, a high level by historical standards.
If the US dollar remains strong and net positions continue to be tapered, silver prices could fall further to around $27.5 per ounce or even $26.1 per ounce in the near term, UBS strategists said in a note. Given that silver prices have recently fluctuated more than 30%, such declines are not uncommon.
“Most importantly, we expect silver prices to quickly recover from any decline over the next six to 12 months,” UBS strategists said in a note.
Primarily, UBS strategists expect strong industrial demand for silver from the PV sector. Furthermore, mine production is expected to contract marginally again in 2024 for the second year in a row.
The strategists noted that these two factors, which were highlighted earlier in their report, would help protect against lower prices.
For silver prices to rise, US interest rates and the US dollar need to fall in the second half of the year. UBS’s base case is that the Fed will cut rates twice this year, starting in September, which would boost expectations for further rate cuts in 2025.
“This could eventually lead to a shift in ETF positions, which are already showing signs of stabilization,” UBS strategists wrote.
“For investors who are less optimistic about silver, we recommend selling downside risk silver starting at $26.1 per ounce over three months.”
