Silver powering 20 million homes as supply surplus subsides

Record industrial demand for silver and resurging investor interest is diminishing a supply surplus, driving the metal used in everything from solar panels to batteries into its best start to a year in almost three decades.

Manufacturers will use 15,415 metric tons, 2.5 percent more than in 2011 and reducing the glut by 41 percent to 3,297 tons, Barclays Capital estimates. Investors may buy 2,000 tons through exchange-traded products, after selling 1,300 tons last year, Morgan Stanley predicts. Prices will average $37.50 an ounce in the fourth quarter, 12 percent more than now, the median estimate in a Bloomberg survey of 13 analysts shows.

The metal rallied 23 percent since closing at an 11-month low in December, entering a bull market on mounting confidence that another global recession will be avoided even as the World Bank andInternational Monetary Fund cut their growth forecasts. Prices had plunged 44 percent in eight months, making it the most volatile of any metal tracked by Bloomberg, as expansion slowed from Europe toChina, crimping demand for commodities.

“Silver got hammered and now we’re into a phase where it will do quite well,” said Dan Smith, an analyst at Standard Chartered Plc in London, and the second-most accurate price forecaster tracked by Bloomberg Rankings in the past eight quarters. “Appeal comes from its widespread use in both industry and investment. I think it’s relatively cheap.”

Standard & Poor’s

The commodity advanced 20 percent since Dec. 31 to $33.3875, the best start to a year since 1983. The Standard & Poor’s GSCI Total Return Index of 24 commodities rose 2.6 percent and the MSCI (MXWD) All-Country World Index of equities 4.7 percent. Treasuries lost less than 0.1 percent, a Bank of America Corp. index shows.

This year’s anticipated gains in silver will mean record profit for Coeur d’Alene Mines Corp. (CDE) and Fresnillo Plc (FRES), analyst estimates compiled by Bloomberg show.

Economies may still pose the biggest threat to the rally. The IMF cut its 2012 forecast on Jan. 24 to 3.3 percent from 4 percent and warned that Europe’s debt crisis threatened to derail the world economy. The World Bank reduced its estimate by the most in three years on Jan. 18, to 2.5 percent from 3.6 percent. Global industrial production will expand 2.3 percent, from 4.9 percent in 2011, Macquarie Group Ltd. predicts.

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Posted by Silver Guru on Jan 31 2012. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry