Canadian bank expects silver to outperform gold the next year
Silver will be the precious metal to watch the next year, as gold takes a backseat compared with the grey metal, says analysts at TD Securities. With a price target of $20 an ounce – a rise of more than 17 per cent from the current prices – the precious metal has been recommended by the Canadian bank in its 2018 Global Outlook. Although, analysts are bullish on gold as well, they see more potential for silver because of its higher volatility.
Analysts say gold will improve amid low real rates, firm demand, weak supply and higher volatility. They predict gold to average around $1,300 an ounce in the first and second quarter around $1,325 an ounce in the third and fourth quarter of the next year, while silver is expected to average around $18.50 per ounce in the first and second quarter and $19.25 per ounce in the third and fourth quarter of 2018.
Rally by the precious metals the next year is contributed to a number of factors such as a weaker U.S. dollar and fewer U.S. interest rate hikes.
Analysts expect less than the four mentioned rate increases over the next twelve months by the Fed as it is continually dropping its dot plot estimates and concerns that the models may not be indicative of inflation. As low inflation will require low real interest rates, gold traders may speculate that the FOMC may bring down its terminal rate projections which is 2.75 per cent at present. The bank analysts also expect a downward trend for the U.S. dollar as the Fed follows a gradual interest rate trajectory, which may help other central banks. Moreover, the fragility of the equity markets may also have its role in taking silver and gold higher.
They say there is an increasing number of experts who believe there is more downside trend in the times to come as equities stay in the record territory and pricing in both rates and earnings perfection. This may result in investors relying more on precious metals as hedge.
Meanwhile, the year 2018 is expected to be turning point for the U.S. economy as it is at the stage of the second longest expansion since world war 2. But, experts say, the probability of the U.S. economy falling into a recession is 20 per cent and said that a correction in equity markets may not result in triggering a recession. However, they said that a hawkish Fed and an anti-interventionist Congress may cause a crisis and begin the process of recession. They said that in case of a recession in the U.S. economy next year, interest rate cut of around 200bp by the Fed will be the best option.
