Silver Price Outlook

"While gold prices have been performing well, silver prices have outpaced gold’s price performance during the recent run up. The average gold:silver price ratio declined during December, slipping to 75.7, its lowest level since October 2021. Silver prices touched an intraday high of $24.78 on 3 January, its highest level since late April 2022.

A decline in the U.S. dollar, a softening of bond yields, and the general underperformance of silver relative to gold for several months all came together to push silver prices sharply higher in recent weeks. Silver prices are likely to remain at elevated levels, supported by seasonal strength in precious metals prices. A strong Silver Prices move higher from present levels would be harder to accomplish given the already sharp move silver prices have experienced. Silver prices are likely to suffer a short -term pull back and could spend some time consolidating around present levels until the market tries to figure out what course the Fed would adopt in the coming year.

A large part of the rise in silver prices is the result of market participants anticipating a reduction in interest rates later this year. This thinking may be premature and is out of sync with the Fed’s thoughts on interest rates for the next three quarters. This disconnect between the Fed and market opinions could continue to create volatility for various asset prices.

Eventually economic data will determine the direction that the Fed will adopt. It is key to understand though that the Fed is not likely to change course on interest rates at the slightest change in direction of economic data and would require consistent and meaningful softness in inflation and the labor market before it even considers a change in course of interest rates. Meanwhile, markets typically respond more quickly and strongly to a change in the direction of data. Perhaps a good way to understand this divergence of opinions is to consider all of the incorrect predictions about an ‘imminent Fed pivot’ on interest rates clouded market commentary throughout most of 2022.

Economic growth and inflation are expected to soften in the coming quarter and unemployment also may rise. These changes may not be enough to convince the Fed to change course on rates but will likely be sufficient for markets to rise in anticipation of the Fed changing direction on rates.

Silver prices are expected to move between $22 and $25 in the near term. If silver prices are able to settle above $25 a run to $25.80 is possible."