The silver price has recently settled in a narrow range between 78 and 80 US dollars per ounce. However, while the market initially signals stability, Commerzbank advises caution: According to the bank’s assessment, the fair value of silver is closer to 40 US dollars than its current level. At the same time, the institution does not expect a quick end to the upward trend. The reason lies less in the classical fundamentals of silver itself, but primarily in its close correlation with gold.
Silver price heavily supported by gold price
Thu Lan Nguyen, Head of FX and Commodity Research at Commerzbank, sees the recent rise in the silver price primarily as a consequence of the gold price development, according to a report by Kitco News. Silver was thus driven less by economic factors such as bond yields or the US dollar, but strongly by the dynamics of the yellow metal. From the analyst’s perspective, silver had previously built up an undervaluation compared to gold, which has now partially diminished with the latest movement.
This explains why the silver price can remain high despite what Commerzbank considers an independent overvaluation. If gold is explicitly included in a valuation model, the estimated fair value of silver fits the actual price trend significantly better. Without this gold factor, however, the valuation is considerably lower. This is precisely where the tension in the current market lies: silver appears expensive in isolation, but follows a gold market that continues to receive strong support.
Commerzbank sees fundamental gap in silver valuation
Commerzbank considers silver overvalued based on its own fundamental data. Nguyen points out that the fair value of the metal could be closer to 40 US dollars per ounce. This implies a valuation risk should the gold price lose its supportive role or the macroeconomic environment change.
At the same time, the bank does not expect this discrepancy to be fully closed in the short term. According to Commerzbank, gold remains in demand as a safe haven. Particularly robust central bank demand supports the metal because gold is considered a neutral and politically independent monetary asset. This function indirectly affects silver, which is pulled along by the strength of the gold price.
The development since the outbreak of the Iran war is interesting in this context. Nguyen notes that Commerzbank’s estimated model value without gold has remained relatively stable recently and indicated a smaller correction than was actually observed in the silver price. Part of the overvaluation has thus already been reduced. Nevertheless, according to Commerzbank, a significant difference remains, which is related to the continued high valuation of gold.
Gold as a safe haven remains crucial
Even though gold has faced difficulties in recent weeks, Commerzbank does not see its role as a safe haven damaged. The precious metal temporarily served as a source of liquidity for central banks and investors, but in the bank’s view, it did not lose its fundamental attractiveness in an environment of increased geopolitical uncertainty.
This is crucial for the silver price. As long as gold remains highly valued and in demand as a hedge against risks, silver should also receive support. This assessment explains why the bank remains generally constructive despite fundamental valuation concerns. Silver may appear expensive by its own standards, but the overarching precious metal demand, geopolitical uncertainty, and gold’s role as a reserve and safe-haven asset have so far prevented a stronger normalization.
Interest rate cuts could further support silver
Despite its warning of a possible overvaluation, Commerzbank recently raised its price forecasts for gold and silver. The institution expects the US central bank Federal Reserve to cut interest rates in the second half of the year. Such an environment could push gold back above the 5,000 US dollar per ounce mark.
According to Commerzbank, higher gold prices would also pull the silver price further upwards. The bank expects silver to rise to 90 US dollars per ounce in such a scenario. This forecast remains clearly above the current trading range of 78 to 80 US dollars, even though the institution simultaneously points to the fundamental valuation difference.
