Silver rate outlook: Ever since recording its worst decline in almost 45 years, silver prices have been consolidating in a range, raising concerns among investors that the white metal may be staring at another period of lull.
Silver is notorious for entering long periods of consolidation. It rarely runs nonstop. History suggests that sharp moves have been followed by cooling periods that have lasted from months to years.
Silver can consolidate for 3-8 years, shows history
After the 1980 spike near $50 an ounce, prices corrected sharply and remained subdued for almost two decades before the next structural rally, according to data shared by INVasset PMS’ Harshal Dasani.
In the more relevant modern cycle, silver touched about $49 in April 2011 and then entered a deep corrective phase, falling nearly 70% over the next four years and broadly consolidating between $14–$20 from 2015 to 2019. Even after the COVID-led rally to nearly $30 in 2020, silver spent close to three years in a broad $18–$26 range before attempting a breakout.
So historically, post-peak consolidations have lasted anywhere between 3 to 8 years depending on macro liquidity and industrial demand cycles, he said.
Silver’s high returns come with higher volatility
Like in the past, the current slowdown in silver’s blistering rally has come on the back of white metal moving too fast, too soon. It had risen 200% in two years, far outpacing gold’s return. Gold prices also corrected, but the quantum was one-fourth that of silver’s, underscoring the more volatile nature of the latter.
“Silver is more volatile than gold because it reacts to both investment demand and industrial demand. So when prices shoot up quickly, traders book profit and physical demand slows a bit — that’s when it moves sideways. We’ve seen this pattern repeatedly,” Ravi Singh, Chief Research Officer at Master Capital Services Ltd.
But the question is, are we staring at the start of another phase of no or limited returns?
Silver entering its “boring” phase?
The last crash in silver prices is being largely viewed by analysts as a pause. According to Dasani, a 40% correction from peak levels does indicate that excess froth has been removed.
Meanwhile, to Singh, silver feels like it’s catching its breath. Prices had moved up strongly, with more than 150% run straight to mark the high of ₹420,000 and after such moves, markets usually digest gains, he noted.
The higher prices are limiting buyers even as industrial demand remains strong. And fundamental triggers of last year, such as inventory drawdown from major exchanges is still a concern.
“Silver prices have been capped. It doesn’t necessarily mean a big fall is coming, but it does suggest that returns may not be as sharp as before in the near term. Silver tends to swing between excitement and boredom. We may be entering the “boring” phase for a while before the next trend emerges,” opined Singh.
Dasani believes that a decisive breakout from the range would require either a sustained dollar decline or clear evidence of supply tightness in physical markets.
Echoing a similar view, Manav Modi, Commodity Analyst at Motilal Oswal Financial Services, said it could be possible that after a sharp rally, some time-wise correction is seen in silver, but then, much-needed triggers are available, and prices could again start to inch higher.
Modi advised taking exposure to the precious metals via ETF or derivatives on MCX based on the risk profile and investment tenure. He believes that investors should have at least 10% of their portfolio in precious metals, with a higher allocation to gold.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.
