Investing.com -- Silver prices are poised for further gains in the coming months, driven by a combination of favorable macroeconomic factors and robust demand fundamentals, as per analysts at UBS in a note dated Monday.
A weaker U.S. dollar, improving sentiment across financial markets, and record-high gold prices have all contributed to a recent modest rebound in silver prices.
UBS analysts suggest that long-term investors should consider increasing their exposure to silver, with a target price range of $36-38 per ounce.
The recent weakening of the U.S. dollar and a shift towards a more risk-on environment among investors have provided a supportive backdrop for silver.
While much of the market's focus has been on U.S. macroeconomic developments and the potential for lower interest rates, UBS analysts believe that silver offers more than just a play on U.S. economic news.
Despite recent weak manufacturing data from developed economies, UBS remains optimistic about the industrial demand for silver.
“In our base case, industrial application demand should still expand by 50mn ounces this year, or close to 10% y/y, driven by secular demand drivers (like the energy transition),” the analysts said.
This growth is expected to be driven by long-term secular trends, including the global energy transition, which is likely to require increasing amounts of silver for applications such as solar panels and electrical components.
Another positive factor for silver prices is the renewed demand from China. UBS notes that China has shifted back to being a net importer of silver, with net imports reaching 5.0 million ounces in July, up from 3.2 million ounces in June.
The brokerage expects that China will continue to report positive net imports in the upcoming August trade data.
This renewed appetite for silver in China is partly driven by falling yields in the country and expectations of further weakness in the Chinese yuan (CNY), which are likely to keep onshore silver price premiums elevated.
As a result, silver imports into China are expected to remain strong, providing further support to global silver prices.
UBS analysts also highlight the potential for increased demand for silver exchange-traded funds (ETFs) as U.S. economic outperformance, or "exceptionalism," fades.
Additionally, a recovery in manufacturing sentiment, which UBS anticipates in the coming months, could further boost silver demand.
Given these factors, UBS maintains a positive outlook on silver, advising long-term oriented investors to consider long exposure to the metal.
Furthermore, the brokerage suggests that investors could explore selling price downside risks to generate additional yield, given the favorable demand dynamics and supportive macroeconomic backdrop.