Silver refuses to be left behind by gold's bull run

By Peter Hobson

LONDON (Reuters) - Silver prices have risen around 15% this week to seven-year highs that some analysts see as the start of a bull run powered by low interest rates, resurgent investment demand, disrupted production and a recovery in industrial consumption.

At $22 (17 pounds) an ounce, prices have almost doubled from a low of $11.62 in March. Silver's performance this year now exceeds that of gold , which has leapt 22% in 2020 towards record highs above $1,800 an ounce.

Graphic: Gold and silver - https://fingfx.thomsonreuters.com/gfx/ce/yxmpjroxrpr/SILVER%20GOLD.JPG

Lower returns on bonds have made it more attractive to hold gold and silver, and investors are stockpiling both in the hope they will hold their value as central bank stimulus unleashed during the pandemic erodes other assets.

Graphic: Silver ETF holdings - https://fingfx.thomsonreuters.com/gfx/ce/qmypmknwapr/SILVER%20ETF.JPG

Consumption of silver in industries, such as solar panels and electronics, is also likely to increase as the economy rebounds, while silver mine output is projected by consultancy Metals Focus to fall 7% this year as the novel coronavirus interrupts operations.

At the same time, a weakening dollar is making silver cheaper for buyers with other currencies, fuelling the rally.

"It's quite a cocktail for silver," said Saxo Bank analyst Ole Hansen, predicting that prices will consolidate before moving towards Fibonacci technical resistance at $26.

Graphic: Silver speculative positioning - https://fingfx.thomsonreuters.com/gfx/ce/dgkpldgzbpb/SILVER%20POSITIONING.JPG

Analysts at Citi said in a note prices could rise to $25 over 6-12 months – outperforming gold – as investors move to protect their wealth and global economic activity improves.

However, a Reuters poll of 42 analysts and traders conducted this month said silver would average $20.03 an ounce next year.

Graphic: Gold/silver ratio - https://fingfx.thomsonreuters.com/gfx/ce/yzdpxnowkpx/SILVER%20RATIO.JPG

Technical indicators show silver is overbought, suggesting that prices will struggle to move immediately higher.

Any weakness is a chance to buy, some traders say.

"A deep setback lower is looming," tweeted Gianclaudio Torlizzi at consultancy T-Commodity. "I will be using the correction as opportunity to charge long. A new bull market has started."

Graphic: Silver technical chart - https://fingfx.thomsonreuters.com/gfx/ce/jznvnkeoqpl/SILVER%20TECHNICALS.JPG