TORONTO (miningweekly.com) – Silver prices will probably remain volatile over the coming months, and could decline before moving higher in the latter part of 2011, CPM Group MD Jeffrey Christian said on Monday.
Presenting the findings of the group's new Silver Yearbook 2011, Christian said that the silver price is being driven primarily by investment demand, although fabrication demand for the metal also increased in 2010 for the first time since 2007.
Investors bought 142-million ounces of silver in 2010, and CPM is forecasting net investor purchases of 142,2-million ounces this year.
Investors have sought out silver for its safe-haven properties, as well as for portfolio diversification and the strong supply and demand fundamentals for the metal, the group said.
Investment demand has also been helped by the introduction of exchange-traded funds, which make it easier and safer to purchase physical metal. Investors added 123-million ounces to their ETF holdings in 2010, Christian said.
Silver coin demand rose 11% in 2010, to 74,5-million ounces.
Silver prices rose 85% last year, and posted sharp increases this year during February, March and April, eventually topping the previous record, set in 1980, and almost breaching the $50/oz level.
However, the metal has fallen back dramatically this month, declining more than 25% last week, and is currently sitting below $38/oz.
“Silver was in a bubble six days ago, it's not in a bubble now,” Christian said.
However, he cautioned that prices will likely remain volatile.
“We think that you are still in an area of price turbulence, and you will be for the next few months at least,” he said.
“Prices could come off a little bit and then start rising towards the end of the year.”
Total newly refined silver supply increased more than four percent in 2010, to 986,8-million ounces, as a result of increases from both mine and scrap supplies.