Rising investment demand may raise silver prices 12 per cent to $36 an ounce (oz) by the year-end and $50 an oz by the end of 2013, according to ‘Silver Market Review’, an interim report by Thomson Reuters GFMS, a London-based global precious metals consultancy.
In India, silver prices would stand at Rs 70,000 a kg by the year-end and about Rs 90,000 a kg by the end of next year. Yesterday, the metal closed at $32.22 an oz. In Mumbai, silver is trading at about Rs 61,000 a kg.
Investment demand would be critical in determining the price movement. Silver rallied to about $37 an oz in late February and fell to below $30 during the March-May period, owing to weak economic data in the US, the Euro zone crisis and concern of a hard landing in China. Many of these were factors that also influenced the prices of gold. The sell-off was initially triggered by fading hopes of an announcement on QE3 (the third round of quantitave easing in the US).
| GLOBAL SILVER BALANCE SHEET (In tonnes) | ||
| 2011 | 2012 (E) | |
| Supply | ||
| Mine production | 763.8 | 797 |
| Govt sales | 12 | 8.4 |
| Scrap | 256.9 | 260.7 |
| Producer hedging | 10.9 | - |
| Total | 1,043.60 | 1,066 |
| Demand | ||
| Fabrication | 891.5 | 822.1 |
| Producer de-hedging | - | 10 |
| Implied net investment | 152.2 | 233.9 |
| Total | 1,043.60 | 1,066.00 |
| E= Estimates Source : Thomson Reuters GFMS | ||
The Thomson Reuters GFMS report cautioned silver prices might fall in the short term, as investors might shy away from risky assets due to the bleak economic outlook in developed countries, particularly in light of the looming 'fiscal cliff' in the US and the stagnation in Europe.
Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS, said, “Some investors were badly burnt by the price slide in May and many appeared reluctant to get back into silver.” Some investment areas were singled out for specific weaknesses. Coin demand, for instance, is forecast to fall about a quarter from the record high last year. Nonetheless, the report said investment demand for silver had recovered since mid-August. It also pointed to the growing interest in precious metals, especially gold, as a hedge against possible high inflation and currency debasement, following a series of monetary easing announcements from many central banks. The report said the scale of the new wave of investment was somewhat lower than in early 2011, owing to residual caution and growing concern on the fundamentals of silver.
Amid a marginal increase in mine production this year, the industrial application of silver is set to decline six per cent, primarily due to sluggish industrial activity. It is learnt this resulted in heavy de-stocking, right down to the supply chain. With silverware and photography continuing their downtrends, the saving grace is jewellery demand, which is projected to rise slightly this year.
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Meanwhile, scrap supply would see a marginal rise to a fresh all-time high, as higher jewellery and silverware recycling in India outweighs losses in most countries. This is, in part, linked to the fall in silver prices.
Now, silver would be well supported in the low $30-levels by bargain hunters, before it sees a powerful upward trend, as investor interest is rekindled by factors such as a rejuvenated gold market, on-going monetary loosening across major economies, the persistence of ultra-low short-term interest rates and rising fears on high inflation in the long run.