Silver Fair Value Priced at $40? Deutsche Bank Analyst Points to Gold's Dominant Influence

Silver prices appear to have found a comfortable trading range between $78 and $80 per ounce. However, one bank warns of significant downside risks.

According to Thu Lan Nguyen, Head of FX and Commodity Research at Deutsche Bank, the fair value of silver seems closer to $40 per ounce rather than its current market price. In her latest precious metals report, she explained that silver's current momentum is driven more by gold's performance than by economic fundamentals such as bond yields and the US dollar.

"Silver prices appear to be heavily influenced by the strength in gold prices, rising largely because silver was previously undervalued relative to gold. In fact, fair value estimates that explicitly incorporate gold prices align more closely with actual price movements," she noted.

Although Deutsche Bank views silver as overvalued based on its own fundamentals, Nguyen does not expect the current trend to end soon. She added that gold remains well-supported as a safe-haven asset and a hedge against heightened geopolitical uncertainty.

The bank highlighted that gold's safe-haven appeal is reinforced by strong demand from central banks, which view gold as a neutral and apolitical monetary asset.

Despite recent struggles as gold has become a source of liquidity for central banks and investors, Nguyen stated that gold has not lost its safe-haven allure. This environment, she added, will continue to benefit silver as well.

"Interestingly, since the outbreak of the Iran conflict, our estimated model value for silver—excluding gold—has remained relatively stable and recently showed a much smaller downward correction than what actually occurred," she said.

"Thus, part of the overvaluation has been corrected following the Iran conflict, bringing silver prices closer to levels justified by fundamentals. Still, a notable gap remains, consistent with gold's persistent overvaluation. As long as this situation continues, silver prices are likely to benefit."

Despite viewing silver as potentially overvalued, Deutsche Bank remains optimistic about the precious metal. Last month, the German bank raised its price forecasts for both gold and silver.

Deutsche Bank expects the Federal Reserve to cut interest rates in the second half of the year, which could push gold prices back above $5,000 per ounce. Higher gold prices, in turn, are projected to lift silver to $90 per ounce.