Silver prices predicted to soar to $50/oz

PERTH (miningweekly.com) - Silver prices were expected to exceed $50/oz by the end of 2012, Thomson Reuters GFMS reported in its interim silver market review on Thursday.

Silver prices so far this year have averaged $35.70, a rise of 88% year-on-year.

“We now forecast a full year average price of $35.66 in 2011, and expect further price strength in 2012. The main driver of the price remains investment demand, which has absorbed the substantial market surplus that has characterized the silver market in 2011,” GFMS said.

Although silver’s core fabrication demand was expected to rise in the next year, chiefly owing to gains in industrial uses, it would nonetheless be exceeded by gains in mine production and recycling, the report said.

“The resultant silver market surplus is expected to once again be absorbed by investors, as the investment case for silver remains in play. However, downside risks remain, including the potential for the sovereign debt crisis to precipitate a liquidity crunch, impacting the real economy.”

Nevertheless, GFMS said that it expected to see silver’s bull run continue, with the average price expected to be in excess of $45/oz in 2012.

Meanwhile, the report also noted that world investment in silver was expected to reach 278-million ounces in 2011, its second-highest volume in the GFMS data series.

Although this represented a slight fall in ounces from 2010, it would set a new record high in value terms. Further gains were also projected for 2012.

“Investor activity underpinned silver’s moves this year, which saw it rally up to $50/oz in April, before correcting sharply in both May and late September. The main factors driving these price moves were those impacting on gold, namely the eurozone sovereign debt crisis, inflationary fears, loose monetary policies and a weak US dollar.”

Fabrication demand was also expected to increase by some 4% in 2011, with industrial offtake set to rise in spite of the Japanese earthquake, weak economic growth in western economies, and the end of stock replenishment.

GFMS stated that jewellery demand was likely to edge higher despite the stronger silver prices, while silverware and photography would weaken further. Demand for coins and medals, however, was set to establish a new record high, achieving the largest gain in volume terms, of any category of fabrication demand in 2011.

Mine production is expected to grow by 4%, for the ninth consecutive year. Gains were centered on Mexico, China and Russia, while declines were limited with Australia, Peru and the US the only three of note, said GFMS.

Globally, output from primary silver mines was expected to increase marginally year-on-year, with the majority of growth in 2011 driven by higher by-product silver production from gold and lead/zinc operations.

Global silver mine supply was expected to maintain its upward trend in 2012, raising to an eight consecutive all-time high.