UBS Predicts Nearly 20% Upside Potential in Silver Prices Over the Next Year

Investing in silver continues to be an appealing option for investors due to a combination of favorable macroeconomic conditions. Analysts at UBS predict that silver prices may experience a substantial rally, with a potential increase of nearly 20% within the next year.

The report highlights several driving forces behind this anticipated price surge, including monetary easing, a recovery in industrial demand, and heightened investor interest, particularly through exchange-traded funds (ETFs). Currently, silver prices are around USD 32 per ounce, bolstered by global monetary policy easing and a weakening US dollar.

The Federal Reserve’s recent decision to lower interest rates by 50 basis points has increased market confidence that real interest rates will continue to decline. This backdrop of lower real rates is expected to foster economic growth and enhance industrial demand for silver, which is essential in various sectors such as electronics, renewable energy, and medical technology.

Furthermore, as the US dollar weakens—an outcome often associated with declining interest rates—this typically supports higher silver prices. UBS anticipates that these factors could propel silver to new heights, potentially hitting $36 to $38 per ounce by next year.

In addition to central bank influences, the broader recovery in global manufacturing is expected to elevate silver demand. As production ramps up in various industries, the need for silver in industrial applications will likely rise, placing additional upward pressure on prices. UBS notes that a rebound in manufacturing, together with a favorable interest rate environment, could lead to increased inflows into silver-focused ETFs.

China’s economic policies are also pivotal to the optimistic outlook for silver. The Chinese government has initiated several stimulus measures aimed at revitalizing its struggling economy. Given that China is one of the largest consumers of silver, particularly for industrial purposes, these policies could provide a significant boost to silver prices.

UBS believes that if these initiatives are successfully implemented and complemented by further actions, they could greatly enhance demand for commodities such as silver. While the price of silver has fluctuated within a range of $26 to $32 per ounce since the second quarter of the year, UBS expects this stagnation to evolve into a more pronounced uptrend. The analysts foresee silver breaking out of this range and embarking on a sustained rally, aiming for a price target of $36 to $38 per ounce.

However, the analysts caution that certain risks could challenge this bullish outlook. One major concern is that many of the anticipated rate cuts from the Federal Reserve may already be reflected in the market. Any unexpectedly strong economic data, such as a positive payroll report, could temporarily strengthen the US dollar, exerting downward pressure on silver prices.

Additionally, while China has rolled out numerous stimulus measures, not all have successfully ignited a meaningful economic recovery. If consumer demand in China remains stagnant, the upward momentum for silver and other commodities could wane. Furthermore, speculative positions in silver futures are notably high, and a lack of positive developments could trigger a pullback in these positions, diminishing silver’s short-term outlook.

For investors hesitant about a potential rally in silver prices, analysts suggest that selling downside options for yield offers an alternative strategy to gain exposure to silver.