- The weakness in silver over the past few weeks has occurred despite relative stability in the price of gold and the broader commodity complex.
- As a result of silver's recent underperformance, the metal is now trading around 25% below the level that would be expected based on this long-term correlation.
- The average 12-month return for silver following periods where the metal has been 20% undervalued or more has been 18.3%, compared to 3.5% in all periods.
- The main risk is that we see a repeat of 2008, when silver was deeply undervalued relative to gold and the commodity complex, but the correlation was restored by a recession-led commodity price crash.
- While such an event may keep silver depressed for a while longer by undermining industrial use, it would also likely further improve the long-term outlook for the metal as a store of value by further depressing real interest rates.
For further details see:
Silver Selloff: A Bargain Or Coming Commodity Crash? Maybe Both