Silver is only worth $40? Commerzbank: Now it's gold that's "leading the way"

Silver prices appear to have found a comfortable range between $78 and $80 per ounce. However, one bank believes that silver faces a potential risk of a significant decline.

Thu Lan Nguyen, Head of FX and Commodities Research at Commerzbank, stated in her latest precious metals report that the fair value of silver seems to be closer to $40 per ounce rather than its current price.

She explained that the current driving force for silver comes more from gold’s movement rather than fundamental economic factors like bond yields and the US dollar.

"Silver prices seem to be largely driven by gold's strong performance, and their rise is mainly because silver was previously undervalued relative to gold. In fact, a fair value estimate for silver that specifically takes gold prices into account aligns more closely with the actual price trend," she said.

Although Commerzbank considers silver to be overvalued based on its own fundamentals, Nguyen stated that she does not expect the current trend to end soon. She added that gold remains well supported as a safe-haven asset and a tool for hedging elevated geopolitical uncertainty.

Commerzbank pointed out that gold’s safe-haven appeal is supported by strong demand from central banks, as gold is seen as a neutral and non-political monetary asset.

Although gold has struggled in recent weeks as it has become a source of liquidity for central banks and investors, Nguyen said gold has not lost its safe-haven appeal. Meanwhile, this environment will continue to benefit silver as well.

"Interestingly, since the outbreak of the Iran war, our estimated (non-gold) model value has remained relatively stable, and the recent downward correction shown has been much less than what actually occurred," she said.

"Therefore, with the outbreak of the Iran war, part of the 'overvaluation' has been corrected, and silver prices have once again approached a level reasonable for its fundamentals. Nonetheless, there remains a significant gap between the two, which is consistent with the continued overvaluation of gold. As long as this situation persists, silver prices may also benefit."

Although Commerzbank believes silver may be overvalued, the bank remains optimistic about this precious metal. Last month, the German bank raised its price forecasts for gold and silver.

Commerzbank expects that the Federal Reserve will cut interest rates in the second half of this year, which will push gold prices back above $5,000 per ounce. Higher gold prices are expected to lift silver up to $90 per ounce.