Rising investment demand may push the price of silver up by 12 per cent to settle at $36 an ounce before the end of the current calendar year and to $50 by the end of 2013, forecast an interim report “Silver Market Review” by Thomson Reuters GFMS, a London-based global precious metals consultancy.
This will translate in India at around Rs 70,000 a kg by end of the current year and over Rs 90,000 next year. The white precious metals closed at $32.22 an ounce on Friday after witnessing a massive crest and through early this year. Silver is trading at around Rs 61,000 a kg in Mumbai.
Investment demand is the critical area which would determine its movement going forward. Silver rallied to over $37 an ounce late February and fell to below $30 from March to May on a common pressure on industrial metals due to weak economic data in the United States, the Euro zone crisis and concerns of a hard landing in China at times raised fears of poor industrial demand. Much of these moves were driven by factors similarly influencing the gold market, such as the sell-off being initially triggered by a reduced hope of an imminent QE3 announcement.
The report, however, cautioned that there was still scope for downside as regards the price in the short term, as the bleak economic outlook in developed countries may well see investors shy away from so-called risky assets, particularly in light of the looming “fiscal cliff” in the United States and European stagnation.
According to Philip Klapwijk, Global Head of Metals Analytics for Thomson Reuters GFMS, “Some investors got badly burned by the price slide last May and many appeared reluctant to get back into silver”. Some areas of investment were also singled out for specific weakness, with coin demand, for example, forecast to fall by around a quarter from 2011’s record high. The report nonetheless points out that investment demand for silver has recovered since mid-August, highlighting growing interest in precious metals, especially gold, as a hedge against possible high future inflation and currency debasement, following a series of announcements of monetary loosening from the major central banks. Nevertheless, the consultancy feels that the new wave of investment remains somewhat smaller than in early 2011 because of residual caution and going concerns over silver’s fundamentals.
Amid an marginal increase in mine production to the tenth consecutive year in 2012, the industrial application of silver is set to decline by a mere 6 per cent primarily due to sluggish economic activity in the industrialised world, which was felt to have resulted in heavy destocking right the way down the supply chain. Pressure from thrifting and substitution was also said to have remained significant, and programmes to reduce the metal’s use that were adopted or investigated earlier are beginning to hit offtake.
With silverware and photography continuing their secular downtrends, the only bright spot was jewellery demand, which is projected to rise slightly this year.
Meanwhile, scrap supply to rise by a small amount to a fresh all-time high, as higher jewellery and silverware recycling in India outweighs losses in most other countries, in part linked to the fall in silver prices.
Silver should now be well supported in the low $30s by bargain hunters, before the white metal embarks on a new powerful upward trend as investor interest is rekindled by such factors as a rejuvenated gold market, on-going monetary loosening across major economies, the persistence of ultra-low short-term interest rates and rising fears about high inflation in the long run.
