JOHANNESBURG (miningweekly.com) – While investors were reluctant to get back into silver, after getting “badly burned” by the price slide last May, precious metals consultancy GFMS said that investment demand had recovered since mid-August.
In its ‘Interim Silver Market Review’, the Thomson Reuters unit highlighted 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.
GFMS global head of metals analytics Philip Klapwijk said the rejuvenated gold market, along with ongoing monetary loosening, persistent ultra-low short-term interest rates and rising fears about high inflation in the long run rekindled investors’ interest in silver.
“We wouldn’t be surprised also if silver’s gains outpaced gold’s, not only as the usual result of lower liquidity, but also as memories of early 2011’s painful losses continue to fade,” he said in a statement.
The rebound in investment would drive silver prices towards and possibly over its all-time high of over $50/oz in 2013. But for this year, GFMS is forecasting the price of the white metal to rise to the $36/oz mark, from around $32.30/oz on Friday.
However, the new wave of investment remained somewhat smaller than in early 2011, as a result of residual caution and going concerns over silver’s fundamentals.
The report, released on Friday, stated that the unsupportive nature of the fundamentals mainly concerned the demand side, with silver used in industrial applications expected to fall by 6% this year, primarily owing to sluggish economic activity in the industrialised world, which resulted in heavy destocking.
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 were beginning to hit offtake. However, their impact was constrained in some fields by the technical difficulty of moving away from silver.
GFMS said jewellery demand was “the only bright spot” as silverware and photography continued their secular downtrends. Jewellery demand was projected to rise slightly this year, as consumption losses in western countries on weak consumer spending and down-shifting to nonprecious alternatives were offset by rising sales in emerging markets, China in particular.
Overall demand weakness was exacerbated by a small increase in total supply. Mine production in 2012, for example, was expected to rise for the tenth successive year.
Scrap supply was expected to rise by a small amount to a fresh all-time high, as higher jewellery and silverware recycling in India outweighed losses in most other countries, in part linked to the fall in silver prices.
The “fundamental” surplus was, therefore, set to increase this year and, with limited scope for dehedging by producers, GFMS said the gap between supply and demand would have to be filled by investors.
The consultancy cautioned that sentiment could prove volatile and that there was still scope for short-term downside, as the bleak economic outlook in developed countries might see investors shy away from so-called risky assets, particularly in light of the looming “fiscal cliff” in the US and European stagnation.