Caution warranted after the bullish UBS silver price forecast

UBS, the giant Swiss bank, has delivered an extremely bullish outlook for gold and silver prices. In a note, the bank’s analysts noted that gold could jump from the current $2,000 to over $2,200 later this year. If this view materializes, they hinted that silver price will do much better.

The case for silver and gold

UBS identified three key reasons why these precious metals will likely do well this year. First, they noted that the Federal Reserve and other central banks will likely start cutting interest rates this year as inflation cools.

Jay Powell, the Fed Chair, has hinted that a cut will come even as he ruled out against a cut in its March meeting. He noted that inflation remains stubbornly high, with the headline Consumer Price Index (CPI) rose to 3.3% in December. 

Second, UBS noted that a large population will go to an election later this year. This includes companies like the United States, UK, India, and the European Union. In all, countries with over 2 billion people will go to an election. As a result, these elections tend to have some volatility ahead and after election.

UBS agreed that silver is not always seen as a safe haven in periods of heightened risks. But gold price tends to react to these events, which leads to outperforming gold in that period. In a statement, the analysts said:

Finally, the analysts noted that silver is currently undervalued compared to gold and has some catching up to do. For one, gold has risen by over 8% in the past 12 months while silver has barely moved. Indeed, the gold/silver ratio has risen to $90, has risen by over 16% from its lowest point in 2023.

The caution is that silver has a history of underperforming the market in the past few years. For one, it has risen by about 40% in the past five years while the S&P 500 index has jumped by over 90% in the same period.

Silver price forecast

Silver chart by TradingView

The weekly chart shows that silver has gone nowhere in the past few months. It has moved slightly below the 50-week and 100-week Exponential Moving Averages (EMA). On the positive side, silver has formed an inverse head and shoulders pattern, which is a bullish sign.

Therefore, the outlook for silver is neutral for now. If this happens, the key support and resistance levels to watch will be at $20 and $25. More downsides will be confirmed if the price moves below the key support at $20.7, its lowest point on October 2nd.