Page 26 - Bullion World Volume 4 Issue 4 April 2024

Bullion World | Volume 4 | Issue 4 | April 2024

Lean investment demand of silver is also set to turn. The Silver price is nearly 50%
Investment demand for gold has been tepid despite below its historic high of USD49/oz in 2011, while gold
soaring gold prices. Aggressive monetary policy is trading 17% above the peak of USD1,900/oz. This is
tightening in the recent past has been a headwind. contrary to the usual tendency of silver to outperform
Higher treasury yields and the impressive performance of when gold shines, being the preferred cheaper substitute
equity markets added to the opportunity cost of holding among precious metals.
gold, leading to gold disinvestment.
Lack of investment demand in silver is the key reason
Gold-backed ETF holdings are lower by 758 tonnes from behind its underperformance against gold. Unlike
the peak of 3,125 tonnes in April 2022. These outflows gold, silver failed to benefit from rising geopolitical and
were concentrated in North America and Europe (774 economic risks over the past year. Even robust physical
tonnes). North America has recorded outflow of 417 demand and tight market balance could not spur
tonnes since April 2022 and 73 tonnes in January and investments. The disinvestment in silver ETF holdings
February 2024. European ETF holdings fell to 1,353 was a staggering 137 million oz in 2022 and 45 million oz
tonnes, below the five-year average holding of 1,500 in 2023.
tonnes. Asia recorded inflow of 20 tonnes since April
2022, but this volume pales before the heavy liquidation From an investment demand perspective, what lifts gold
by developed markets. The inflow, largely into China, can also lift silver. Once the Fed starts easing, silver
accelerated in 2023 as investors rotated funds from will benefit too. Currently, the gold-to-silver price ratio
equity and currency to gold. is nearly 90, which is 25% more than the long-term
average. A relatively cheaper valuation of silver against
As ETF outflow has been in response to monetary gold might be appealing to many investors.
tightening, it is likely to reverse once central banks
start easing. A less crowded investment market for The accelerated pace of energy transition, the upturn
gold presents significant upside potential. We estimate in semiconductor cycle and restocking in India should
investment demand of around 460 tonnes will keep the support physical silver demand. We believe this will
market balanced in 2024. attract both retail and institutional investors.
Silver prices could rise towards USD28/oz by the end
Silver’s underperformance will turn of 2024. We expect gold prices to close the year at
Our gold view aside, the underperformance in the price USD2,300/oz.

Chart 1- Gold price vs Fed rate cut outlook Chart 2- Gold ETF net flows vs price change y/y

Chart 3. Silver ETF net flows vs price

Source: Bloomberg, Macrobond, ANZ Research

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