Silver "Another step higher in 2025"
UBS: The Silver floor has been raised
UBS’ report on silver markets for 2025 projects a bullish outlook for the metal, forecasting prices to rise to USD 36-38 per ounce by the end of the year. Their optimism stems from expectations of lower U.S. yields, improved global industrial activity, and a rebound in investor confidence. They also provide levels at which they would be buyers for their book and their clients if a dip presented itself.
Silver: Another Step Higher in 2025
Bottom Line:
The UBS report identifies silver’s dual role as a precious and industrial metal, emphasizing the importance of cyclical drivers this coming year alongside Precious market dynamics.
Silver prices have risen more than 20% in 2024, though gold has had an even more impressive performance. We believe the metal can rise in absolute and relative terms (vs. gold) in the year ahead.
Silver doesn't benefit from central bank purchases like gold does, but lower real US yields and stronger global industrial production should favor the metal in 2025.
We like outright long exposure or to sell the downside price risks. We maintain a target of USD 36-38/oz.
Recent Performance and Market Dynamics
Silver prices have risen more than 20% in 2024, with notable headwinds emerging late in the year. Higher U.S. yields, a stronger dollar, and concerns about global growth outside the U.S. reversed some earlier gains. The report highlights that these dynamics mirror those seen across other precious and industrial metals, reflecting broader macroeconomic pressures.
“Silver’s recent price action has been influenced by both macroeconomic headwinds and shifts in speculative positioning, creating a foundation for potential recovery in 2025.”
Silver’s price movements have remained closely correlated with gold (correlation of 0.7-0.9) but also show elevated co-movement with industrial metals (above 0.5). Net futures positions have declined, with speculative accounts increasing short positions, while ETF holdings have stabilized after a reduction of over 30 million ounces between October and December.
Key Drivers of UBS Silver Bullish Outlook
There are two key drivers UBS makes: Lower Yields/USD, and an uptick in Global Industry.1
1- Lower U.S. Yields and a Softer Dollar
”Declining yields and a softer dollar provide a direct tailwind for silver, reducing its opportunity cost and making it more attractive to global investors.”- UBS
UBS identifies declining U.S. yields as a critical factor supporting silver prices. The report projects at least two rate cuts by the Federal Reserve in 2025, which should lower opportunity costs for holding non-yielding assets like silver. Additionally, a weaker dollar would enhance the metal’s appeal in non-dollar-denominated markets.
2- Improved Global Industrial Activity
“The delta in industrial silver demand is not the primary driver; rather, it is the broader recovery in manufacturing and risk sentiment that will lift prices.”- UBS
Silver benefits from its use in industrial applications, particularly in developed markets. While industrial silver demand remains robust, UBS argues that stronger investor confidence, rather than incremental industrial demand, will likely drive prices higher in 2025.
Silver was habitually sold for all of 2024 against Fed hike fears and as a hedge for speculative Gold Buying…
Challenges to Silver’s Outlook
Central Bank Dynamics
Unlike gold, silver does not benefit from central bank purchases, leaving it more vulnerable to shifts in speculative positioning and market sentiment. The report acknowledges that silver’s dependence on cyclical factors makes it more volatile and exposed to short-term macroeconomic changes.The Bank:
“While a rising gold price can provide underlying support to silver, the absence of central bank buying means investor confidence is critical for silver’s performance.”
Technical Price Levels
Silver prices currently hover around the 200-day moving average, with technical support levels identified at USD 28/oz and USD 26/oz. Breaking below these levels could trigger further selling pressure in the short term.
UBS Client Recommendations
UBS recommends two primary approaches for their silver investors:
Outright Long Positions: With a year-end price target of USD 36-38/oz, UBS encourages outright long exposure to benefit from the anticipated recovery in 2025.
Selling Downside Risk: The report suggests selling downside price risks over the next three months to capture yield while markets digest near-term uncertainties, including U.S. tariff risks.
The report notes: “Selling downside risks offers an opportunity to benefit from yield pickup while positioning for longer-term price appreciation.”2
Conclusion:
UBS concludes that silver’s trajectory in 2025 will depend on macroeconomic drivers, particularly lower U.S. yields and improved industrial activity. While the metal faces challenges from speculative dynamics and the absence of central bank support, the broader environment of monetary easing and cyclical recovery creates a favorable setup for price gains.
As they summarize: “Silver’s dual nature as a precious and industrial metal positions it uniquely to benefit from a confluence of declining yields, industrial recovery, and improving risk sentiment.”
GoldFix Comment:
First the Bad News: We think, if the Fed does not cut, *and* China does not boost stimulus, Silver suffers more.
Now the Good News: We also think pursuant to our belief the World’s central banks always choose inflation over recession, China will do more stimulus whether the Fed cuts or not. And that (if it happens) will drive Silver to outperform everything except maybe Chinese equities in 2025.
Our personal plans are to buy more physical per UBS levels if it drops, and to buy strength as traders if certain indicators turn positive for us.
Founders access original report here
We think this is correct in the sense that the absence of these drivers have been holding Silver back. As stated in this space and on Morning Rundowns many times: CTAs and those with equity exposure will habitually sell Silver against their economic risk. The charts prove this. But, despite this, Silver has been largely stable against Gold if somewhat weaker than in 2020.
The point being, if we assume the industrial correlation remains robust and the global economy then kicks in— there will be nothing left to stop Silver. Therefore, while Gold will continue to rally as a Central bank asset being purchased, Silver can explode if those who view Silver industrially are forced to buy it back.
Comment: this is for extremely wealthy people. Our suggestion, buy the physical dip in that area. If you must use options, we do not sell a naked put. We sell put-spreads and buy calls in what is typically called a 3-Way trade. Loss potential is defined, and some premium offsets cost of call buying. Naked put selling is for idiots, experts (sometimes the same people) and billionaires
Thank you sharing this report