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Why Bank of America Merrill Lynch Favors Silver over Gold

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Silver over gold

Further to Bank of America Merrill Lynch’s take on gold, it’s crucial to consider the bank’s take on silver. Investors around the world have shown keen interest in silver’s rally in 2016. Silver has substantially outperformed gold, and so have silver-based funds such as the iShares Silver Trust ETF (SLV) and the Velocity Shares 3X Long Silver ETF (USLV). These two funds have risen by 40.6% and 147.5%, respectively, on a year-to-date (or YTD) basis.

Silver has substantially outperformed gold, and so have silver-based funds such as the iShares Silver Trust ETF (SLV) and the Velocity Shares 3X Long Silver ETF (USLV). These two funds have risen by 40.6% and 147.5%, respectively, on a year-to-date (or YTD) basis.

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Possible outcomes

The bank is placing emphasis on investor demand in its prediction of silver prices. It has provided three predictions for silver:

  1. Non-commercial market participants will reduce purchases compared to 2015. Silver could fall to $15 per ounce or below.
  2. Investors will increase their purchases marginally. Silver could average $20 per ounce.
  3. There will be a rise in non-speculative demand to the tune of 30% year-over-year- Silver could rally to $25 per ounce.

Though the physical demand for silver has been underpinned in the Asian market, silver coin sales have remained high in the United States YTD.

Other factors

As the Federal Reserve has been continuously trying to elevate inflation numbers, commodities may benefit from rising inflation. Note that gold is used as a hedge against inflation, and a pull on gold’s price most often brings a similar reaction in silver’s price. The correlation between the two crucial precious metals remains high.

Another element that significantly affects silver is industrial demand. Silver is used extensively in many electronics and also for solar panels. This could provide further buoyancy to the metal.

In the next article, we’ll discuss JPMorgan Chase’s outlook on gold.

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