A Modest, Bullish Outlook for Silver Prices

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Investor interest in silver will continue to play the deciding factor for silver prices over the following months. The prices on silver will go back to $30/oz and remain consistent throughout the year if HSBC’s Outlook report is anything to go by.

This report was generated taking into account factors like over ground excess stock of silver due to an unequal scale struggle between moderately increased mine production and scrap silver supply and mediocre demand in industrial and physical demand.

If prices are to be stopped from falling further, then the excess stock will have to be absorbed through net divestment. HSBC report believes that the prices will stay moderately bullish over a continuous period of time hovering around $32/oz.

The bank feels that while industrial demand can have an impact on prices, investor sentiments will be the determining factor to spike silver prices in the short term. Investor demand in the form of silver ETFs has absorbed a sizable amount of surplus silver generated by slack from the decline in demand from photography and jewellery.

According to a rough calculation, silver ETFs will hold the value of nearly two-thirds of annual silver mine output this year and twice the demand for jewellery and silverware.

There are various other factors affecting investor demand for silver.

  • Easing of monetary policy by the US Federal Reserve and other central banks, further this year.
  • Possible negation in real estate rates due to steadily accumulating debt levels.
  • A shift in focus from the Euro crisis to upcoming US elections. If the euro crisis is dealt with, resulting in strengthening of the EUR, this will support silver prices as gold has an inverse relationship with USD.

Silver has always been thought as a traditional safe-haven asset but it has not behaved like one during the sovereign risk crisis in the euro zone. Partly it was because it had competition from other safe have assets and most importantly unlike other assets who are dependent of each other’s behaviour, silver traded independently from USD and US Treasuries as well as from German and British government bonds.

Although silver is influenced by shifts, it is greatly manipulated by its own supply and demands. As it is more independent than other assets and does not act as a risk on/off the asset, investors will find it attractive for portfolio diversification or to maintain a risk-neutral portfolio. Investing in silver may be a good change to those who expect some diversity from gold.

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