Analysts' Recommendation
Opportunity to go long on silver, short on crude oil, says Societe Generale
This story was originally published at 13:35 IST on 23 January 2025
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MUMBAI – Silver prices have not been able to break above the initial resistance at $31 per ounce. However, analysts at Societe Generale see an opportunity to go long on precious metals, especially silver, while going short on oil, Kitco.com said in a report Wednesday.
According to analysts, the US equity risk premium has dropped below 3%, an event observed only 10 times since 1990. Historically, precious metals outperform as risk premiums normalise, with silver shining the brightest, the report said. Gold prices have seen annual returns of more than 6% when the risk premium normalises, while silver has achieved annual gains of more than 12%, it said. Oil prices have declined nearly 14% at the same time.
"Based on this analysis, we recommend initiating long positions in silver and short positions in oil. This strategy could be implemented immediately, with a rise above the 3% threshold further solidifying our conviction. For silver, we suggest favouring physically replicated ETFs (exchange-traded funds) over futures for structural reasons, and given the current disconnect between US futures and the London Bullion Market Association spot," the report said, quoting analysts at Societe Generale.
"With (US President) Trump now in office and holding a majority in both the House of Representatives and the Senate, the prospects for ballooning public debt and heightened geopolitical instability are becoming clearer. This high-risk environment is favourable for precious metals but less so for industrial commodities," the analysts said. "If our prediction holds, and precious metals benefit from the current situation, silver should see a more significant rise than gold, given that silver's beta to gold is 1.42 when both metals' prices are increasing."
On the downside, the biggest risk to this prediction is China, the report said. "If China's growth stops disappointing, OPEC+ (Organization of the Petroleum Exporting Countries and its allies) could fill the gap, but oil prices would likely remain high. A portion of the premium on gold is due to Chinese investment in the precious metal. A resurgence in consumer confidence in China could divert investment flows from gold to the currently depressed real estate and equity markets," the analysts said. End
US$1 = INR 86.49
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Ashutosh Pati
Edited by Subhojit Sarkar
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