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Silver rally unlikely to hold without gold support, says HSBC

EditorIsmeta Mujdragic
Published 09/09/2024, 10:08 AM
SLV
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On Monday, HSBC strategists provided insights on the recent movements in precious metal prices, focusing on silver, palladium, and platinum. They indicated that while silver prices have experienced a rally, they are unlikely to be sustained without stronger performance from gold. The strategists also evaluated the platinum group metals (PGMs), noting that palladium might struggle to maintain its rally due to weakening equity prices and concerns about an economic slowdown.


According to HSBC, the palladium market is not expected to rally until there is evidence of real physical tightness. In contrast, platinum does not require a gold rally to increase in price. However, it has shown sluggishness recently. The strategists attributed this to a lack of robust physical demand from Asian markets. They suggested that if platinum prices were to approach or fall below $900 per ounce, it would be considered fundamentally undervalued.


HSBC's analysis points out that different factors influence the dynamics of silver and platinum prices. Silver's fortunes appear closely tied to gold, while platinum can potentially rise on its own merits. Despite this, both metals are currently facing challenges in the market with silver's rally lacking momentum and platinum's demand remaining weak.


The strategists' outlook on the PGMs, particularly palladium, reflects broader market concerns. The potential for economic slowdown and the interplay with equity prices are seen as headwinds that could prevent a sustained increase in palladium prices. Meanwhile, platinum's valuation could become more attractive if it dips below the mentioned price threshold.


In summary, HSBC's commodity strategists have provided a cautious view of the future movements of silver and PGMs. While current market conditions have allowed for some gains, particularly in silver, dependencies and economic factors could limit the potential for further increases in the near term.


InvestingPro Insights


Amidst the cautious outlook presented by HSBC strategists on the future movements of silver, recent data from InvestingPro provides a more granular perspective on the metal's performance. The market capitalization of the iShares Silver Trust (NYSE:SLV) stands at a robust $13.02 billion, reflecting significant investor interest in silver as an asset. Despite concerns over silver's rally, SLV has demonstrated profitability over the last twelve months, which may offer some reassurance to investors about the metal's underlying strength.


However, it's important to note that SLV suffers from weak gross profit margins, and its valuation implies a poor free cash flow yield, which could be potential red flags for investors looking for long-term value. On the positive side, SLV's liquid assets exceed its short-term obligations, indicating a level of financial stability that may appeal to risk-averse investors. While SLV does not pay a dividend, which might deter income-focused investors, the trust has seen a year-to-date price total return of 16.99%, and a one-year price total return of 21.28%, suggesting that it has been a profitable investment for those focused on capital gains over the past year.


For readers interested in a deeper dive into silver and its investment potential, there are additional InvestingPro Tips available, which can provide further guidance on the nuances of investing in SLV. These tips can be found at InvestingPro, offering a comprehensive analysis that complements the insights provided by HSBC strategists.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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