Silver prices have struggled due to a strong US dollar and speculative traders reducing their net long positions in the futures market.
At the moment, speculative accounts hold net long positions of nearly 260 million ounces of silver, which is high by historical standards.
If the USD remains strong and net positions continue to be reduced, silver prices could drop further to around USD 27.5/oz or even USD 26.1/oz in the near term, UBS strategists said in a note. Considering silver’s recent price volatility of over 30%, such declines are not uncommon.
“Most importantly, we do expect silver prices to rebound quickly from any pullback over the next 6–12 months,” UBS strategists said in a note.
Primarily, UBS strategists expect strong industrial demand for silver from the photovoltaic sector. Moreover, mine output is expected to contract marginally again in 2024 for the second consecutive year.
These two factors, previously highlighted in their report, should help protect against price declines, strategists noted.
For silver prices to rise, both US interest rates and the US dollar need to fall in the second half of the year. UBS’s base case scenario is that the Federal Reserve will cut rates twice this year, starting in September, which should strengthen expectations for further rate cuts in 2025.
“This should finally bring a turnaround in ETF positions, which are already showing signs of stabilization,” UBS strategists wrote.
“For investors who are less bullish on silver, we recommend selling downside risks in silver from USD 26.1/oz over three months.”
