TORONTO (miningweekly.com) – As a result of significant investor demand for silver as an alternative investment metal in the current uncertain global economic environment, precious metals consultancy Thomson Reuters GFMS on Thursday said the price for the white metal could top $50/oz in 2013.
During a webcast to present the preliminary findings of the GFMS' 'Interim Silver Market Review’, global head of metal analytics Philip Klapwijk pointed to strong investment demand, albeit in a small market, and the rising intertwined gold price, which would lift the price of silver to between $33/oz and $47/oz, with a 25% probability of significantly higher prices.
However, 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.
The current-year silver price had moved sideways to downward, having declined to October 31 by 13.6% when compared with 2011 at an average of $30.92/oz. However, during this year the price had improved by 12.2%.
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.
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. In fact, investor activity was the main driver behind the price rally to above $37/oz in February and renewed price strength in August.
However, GFMS expected a silver market surplus of more than 300-million ounces this year – the result of an “extraordinary” sustained rise in mining output, whether as a result of primary mining or by-product production. From 2003, silver output had increased by 200-million ounces.
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.
Klapwijk said mine production was expected to increase by 4%, or 33-million ounces, this year and producer dehedging of ten-million ounces is expected as producers delivered silver into outstanding positions faster than they are replaced.
China, Mexico and Russia are expected to post the most significant increases in silver output, while Turkey, the US and Chile are expected to post a decline in silver output.
A factor working against increasing the silver price is the fact that silver is increasingly placed in the same industrial-metals basket as base metals such as copper and, as a result of the subdued global economy and dimmed manufacturing, the metal fails to solicit demand from the industrial sector. The total fabrication demand is expected to drop by 8% this year, the second year of declining industrial demand.
Scrap supply is set to marginally increase this year as gains in India from jewellery and silverware recycling offset losses in the US.
Jewellery demand is set to post modest growth this year as healthy gains in emerging markets will more than offset losses in western countries.
In contrast, both silverware and photographic demand continue their long-term trend of decline.
Silver demand for producing coins is also set to decline by 24%, to below 90-million ounces.