Quick silver’s rollercoaster ride in 2011

Silver, more perhaps than platinum, is a hybrid – an industrial metal with some of the precious metal investment attractions of gold.
This, metals expert Philip Klapwijk said in a presentation to the Silver Institute in New York this week, explains why silver’s price hit an all-time high in April, but is now facing downward pressure.

Klapwijk, of metals consultancy Thomson Reuters GFMS, seemed to err on the positive side during his speech.

In April, silver had all the attributes of a safe-haven investment, soaring to a record $48.70/oz at that month’s final London fix. The motivating forces were the same as those driving gold – the sovereign debt crisis, inflation fears, loose monetary policies and a weak US dollar. But within a fortnight the metal was down to $32.10/oz.

Although Klapwijk concedes that investor interest remains strong despite two major sell- offs this year, he prefers the logic of physical supply and demand. New mine production continues to grow steadily. GFMS is looking for a 4% increase this year, which will take global output to some 790 million ounces (74% of the projected total supply) from just shy of 600 million ounces in 2002.

The year’s net sales from silver exchange traded funds (ETFs) – 23 million ounces of disposals left ETF holdings at 577 million ounces by the end of October. Scrap recycling is expected to rise to 240 million ounces in 2011 from last year’s 220 million ounces, and that’s despite a continuing structural decline in recoveries from the photographic sector.

On the demand side, the picture for next year is clouded by whether the world falls back into recession. The effect economic developments can have is indicated, perhaps, by the fact that GFMS reckons industrial users will take up 48% of this year’s total demand against 26% from investors, 6% from the declining photographic sector and 20% from the jewellery and silverware luxury sectors combined.

The outlook for silver prices? Looking at physical basics, on the negative side we have rising mine output. And the imponderable of the effect of sovereign debt concerns and liquidity constraints on the “real economy” and industrial demand.

On the positive side, if the world’s financial system goes into a tailspin, investors are likely to chase safe havens. Then there’s the longer-term industrial demand that, GFMS says, is relatively price-insensitive.

Next year could provide the acid test.

Will silver respond to investors’ fears, or will “real” economic developments call the price tune? – Source: businesslive.co.za

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Posted by Silver Guru on Nov 20 2011. Filed under Silver prices. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry