Having fallen sharply in mid-March, the silver price has recovered strongly and further gains are forecast for the rest of the year, owing to the precious metal’s safe-haven status and a belief among investors that silver is undervalued in absolute terms to gold.

The silver price is forecast to surpass the $21/oz-mark in late 2020, with a fall in the gold:silver ratio – the quantity of silver ounces needed to buy an ounce of gold – to below 90, the Silver Institute reported on Thursday.

The metal’s price averaged $16.65/oz in the first half of the year, and reached $17.84/oz at the end of June. It has since broken through the $18/oz barrier.

The gold:silver ratio has fallen from its multi-decade high of 127 in March, to 97.8 at end-June. This, the institute said, was still high by historical standards, and might signal that silver was undervalued relative to gold.

The Silver Institute is forecasting a continuation of investment inflows into silver in the second half of the year, after investors flocked to silver-backed exchange traded products (ETPs) and silver bullion during the first half.

“Silver’s role as a valued investment was broadly on display during the first half of 2020, as investors actively accumulated silver in the first six months of the year, leading to a 10% gain in investment demand. Paving the way was remarkably strong growth in silver-backed ETPs, which have posted successive all-time highs this year, together with solid silver coin and bar investment,” it said in a statement.

At June 30, global holdings reached a fresh all-time high of 925-million ounces, which is about 14 months of mine supply. The ETP growth in the first half of 2020 of 196-million ounces comfortably surpassed the highest yearly inflow of 149-million ounces set in 2009. North American listed funds accounted for some 90% of the ETP inflows since March.

Retail bullion coin sales jumped by an estimated 60% year-on-year. Silver bar and coin sales surged in response to a deteriorating economic outlook linked to the global Covid-19 pandemic, leading to some supply-chain disruptions.

The recovery in professional investor activity in May and June reflected improving sentiment towards silver amongst these investors, particularly as a leveraged play on gold.

The Covid-19 crisis negatively impacted on silver fabrication demand in the opening half of the year. After a sharp contraction in the March to April period, silver industrial demand has shown signs of improvement from May onwards after many key economies gradually lifted lockdown measures. However, weak consumer confidence and a sharp rise in unemployment weighed on demand in many end-user applications such as automobiles and consumer electronics. Going forward, some of this consumer drag could be mitigated by flow-through from various governments’ recently announced infrastructure investment programmes, thereby lifting silver industrial demand.

Looking ahead, the Silver Institute said that jewellery was expected to weather the storm better than other precious metals this year. This is owing to the relative affordability and greater suitability to online selling of silver jewellery.

Citing a forecast by independent precious metals consultancy Metals Focus, the institute said that global silver jewellery fabrication would decline by 7%, compared with a projected 25% slump for gold.

Meanwhile, global silver mine supply is expected to continue its decline, given the temporary production stoppages of mining operations in several significant silver mining countries owing to the virus outbreak. Even with most of the mining operations now back on line, global silver mine production is still forecast to dip by 7% in 2020.