The silver market is currently showing a rather unusual setup: prices are holding in a relatively elevated range of around $78 to $80 per ounce, yet according to Commerzbank’s latest assessment, that level may still be significantly above silver’s fair value if judged solely on its own fundamentals. Even so, the current trend does not appear likely to end anytime soon, as silver continues to receive strong support from gold.

In her latest precious metals report, silver’s fair value may be closer to $40 per ounce than to current market prices. This is a notable assessment, as it suggests that silver is trading at a level well above what its underlying fundamentals alone would justify.

Silver Is Rising Mainly Because of Gold, Not Because of Its Own Core Drivers

According to Commerzbank, silver’s current rally is not being driven primarily by traditional economic factors such as bond yields or the U.S. dollar. Instead, the move appears to be largely a result of gold’s strength. In other words, silver is benefiting more from its correlation with gold than from independent drivers within the silver market itself.

Thu Lan Nguyen noted that silver prices have likely been pushed up strongly by gold, especially after silver had previously appeared undervalued relative to the yellow metal. When gold is explicitly included in the valuation model, silver’s estimated fair value aligns more closely with the actual market trend. This suggests that silver’s current price cannot be fully explained by silver-specific fundamentals alone.

Silver May Still Be Overvalued, but the Trend Is Unlikely to Reverse Quickly

Although Commerzbank views silver as overvalued on a standalone basis, the bank does not expect the current trend to end in the near term. The reason is that gold remains well supported by its role as a safe-haven asset amid elevated geopolitical uncertainty.

The bank noted that gold’s safe-haven appeal is being reinforced by strong central bank demand, since gold continues to be seen as a neutral and apolitical monetary asset. That factor is helping maintain gold at high price levels, and as long as gold remains supported, silver is also likely to continue benefiting.

The Iran Conflict Has Helped Correct Part of Silver’s Earlier Overvaluation

Commerzbank also pointed out that since the outbreak of the Iran war, its model value for silver, excluding the impact of gold, has remained relatively stable. In fact, the model recently signaled only a much smaller downward correction than what was actually seen in the market.

According to the bank, the outbreak of the Iran war helped correct part of silver’s earlier “overvaluation,” bringing prices closer to levels that are more fundamentally justified. However, a significant discrepancy still remains, which is consistent with gold’s continued high valuation. As long as gold stays elevated, silver is also likely to remain supported.

Commerzbank Remains Bullish on Silver

What is particularly noteworthy is that despite acknowledging silver may still be overvalued, Commerzbank remains constructive on the metal. Last month, the German bank raised its price forecasts for both gold and silver.

Commerzbank expects the U.S. Federal Reserve to begin cutting interest rates in the second half of the year. Under that scenario, gold prices could move back above $5,000 per ounce. If gold continues to strengthen, silver is forecast to rise toward $90 per ounce.

What Is Really Supporting Silver Prices?

Based on Commerzbank’s analysis, silver prices are currently being supported by three key factors.

First, silver continues to benefit significantly from gold’s uptrend, rather than moving entirely on the basis of its own fundamentals.

Second, gold remains supported by safe-haven demand and central bank buying, as geopolitical uncertainty has not fully eased.

Third, expectations that the Federal Reserve will cut interest rates in the second half of the year continue to provide a constructive backdrop for the broader precious metals complex.

Conclusion

Overall, Commerzbank believes that silver may currently be trading above its fair value if judged purely on its own underlying fundamentals, with that fair value estimated at around $40 per ounce. However, that does not necessarily mean silver prices are likely to fall sharply in the near term, because the current trend is still being supported by gold, while gold itself continues to benefit from safe-haven demand and expectations of a more accommodative monetary policy environment in the months ahead.

Put simply, silver may not truly be “cheap” from an intrinsic value perspective, but there are still solid reasons for it to remain at elevated price levels as long as gold stays strong. And in a scenario where gold moves back above $5,000 per ounce, Commerzbank believes silver could reasonably advance toward $90 per ounce.

Source: Reuters, Kitco