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OUTLOOK 2013: Analysts' Silver Forecasts

Friday December 21, 2012 12:00 AM

(Kitco News) - A number of analysts shared their outlooks on silver in 2013 with Kitco News. Following is a compilation of their views on price action and factors they see as most likely to impact the market.

Barclays Capital

Barclays looks for silver to average $32.50 an ounce in 2013. The bank says the metal remains dependent upon investor interest, since otherwise combined supply from mines and scrap recovery is expected to remain above fabrication demand.

Barclays projects mine production in 2013 of 25,587 metric tons, up from 24,951 estimated for 2012. This would represent a 15% gain since 22,229 in 2008, while an economic slowdown since has meant a dip in fabrication demand.
Industrial demand for silver has softened throughout 2012, and the picture looks unlikely to firm in the coming months, thus exposing silver’s dependence on investor demand,” Barclays sai. The bank later adds: “In our view, silver is set to retain the most volatile price action among metals over the coming year.”

BNP Paribas

BNP Paribas forecast silver to average $39.05 an ounce in 2013, rising in a climate of improving economic growth and continued monetary easing.

“In our view, investment demand has further room to increase in the coming months if interest in gold recovers,” BNP Paribas said.

The bank cautioned that investment may become more “subdued” after the first half of the year if markets start anticipating the withdrawal of monetary easing. “In this regard, we could see some profit taking in the latter part of 2013,” BNP Paribas said.

Meanwhile, the bank said it looks for industrial demand to pick up in 2013, perhaps by as much as 6% to 7%. “While a European recovery does not seem to be on the cards just now, there are clear signs that Chinese economic growth is rebounding,” BNP Paribas said. Industrial consumption declined by an estimated 6% during 2012, largely due to the poor economic climate in Europe, BNP Paribas said.

“Mine supply may be largely stable in 2013 but should return to growth in 2014,” BNP Paribas said. Scrap supply is expected to increase in 2013, supported by higher silver prices.

Commerzbank

Commerzbank forecast an average silver price of $40 an ounce in 2013. “All in all, we are confident that the price of silver will find support from a variety of factors next year and will be able to gain considerable ground,” the bank said.

Investment interest often moves up and down with that of gold. However, Commerzbank cited a November report from Thomson Reuters GFMS, commission by the Silver Institute, showing that industrial demand for silver is expected to rebound after a decline this year. Thomson Reuters GFMS looks for industrial demand to fall by 5.7% in 2012, but bounce by 6.5% to 484 million ounces in 2013 as the global economy recovers. Industrial uses are expected to rise to 57% of total silver fabrication in the next couple of years from 54% last year.

“Silver is thus establishing itself as a precious metal with an industrial character, setting itself significantly apart from gold, which relies on its role as a safe haven,” Commerbank said.

Morgan Stanley

Silver, along with gold, are among the top commodity picks for 2013 by Morgan Stanley. The firm described the metal as a “cheap proxy to gold” but said to expect relative outperformance. Morgan Stanley’s average 2013 forecast is $35 an ounce.
“Silver remains an attractively priced safe haven commodity relative to gold,” Morgan Stanley said. Silver’s volatility, vulnerability to cyclical weakness in industrial demand and supplies can at times leave it “less fundamentally supported” than gold, the firm said. Nevertheless, with potential for technical and momentum for trend-following investors, and signs of improvement in electronic demand, “we expect silver to outperform gold again in 2013,” Morgan Stanley said.

The gold/silver ratio was forecast to average 53.0 during 2013, compared to an average of 60 since 2000.

“Demand from electronics, automobiles, photovoltaic cells and jewelry is making up for the collapse in photographic and coin and medal demand, Morgan Stanley said. “There is a risk that total fabrication demand growth could remain tepid in the current growth environment. However, given slowing production growth, we see demand outpacing supply for at least the next two years.” Morgan Stanley said it forecasts exchange-traded-fund inflows of 500 metric tons of silver in 2013.

Societe Generale

Silver should move higher in conjunction with gold for much of 2013, but then peak, said Societe Generale. The firm’s full-year forecast is $34.

The bank looks for a rise to $40 in the first quarter as gold also increase in response to continued inflationary fears and loose monetary policy. Societe Generale looks for gold to lose its upward momentum during 2013, however, particularly as confidence in the economy improves. If so, silver likely would come under some pressure with gold, the firm said.

Industrial demand for silver was under pressure in 2012, due to factors such as the decline in photographic use, poor sales in the electrical and electronics sectors and struggles for the solar industry amid phasing-out of government subsidies in Europe, SocGen said. “The global outlook for 2013 and 2014 is much better. Our expectation for an accelerating economic recovery in the second half of this year underpins the prospect for revived consumer purchases. This is bullish for the electrical and electronics sectors, especially when combined with some replenishment of the stock pipeline.”

SocGen looks for 2% growth in mine supply for 2012 and 2013.

TD Securities

TD Securities looks for silver to outshine gold in 2013, projecting an average price of $40.52 an ounce.

The bank cited loose monetary policy in a number of key nations, hopes for Europe to resolve macroeconomic issues, fears of potential inflation, central-bank buying and improvement in China’s economy as factors likely to benefit gold.

Silver, should benefit from this dynamic, but it could also be helped by increased industrial demand,” TDS said. “We expect this metal to be near deficit, with a considerable risk of a shortage. Given the metal’s volatility, it should outperform gold with a price near $44/oz when it reaches its late-2013 highs. Silver does better in gold bull markets.”

UBS

The bank forecast silver to average $36.80 an ounce in 2013.  

“Silver is set to outperform in the current accommodative policy environment, especially as risk sentiment remains generally buoyant,” UBS said. “Barring any major risk-off event, we expect this trend to continue in 2013 against the backdrop of QE from the Fed and loose monetary policy from other key central banks. In terms of day-to-day direction, though, silver lacks its own internal drivers and should continue to look to gold for guidance.”

There is some downside risk due to still subdued global economic growth, UBS said. This can dent industrial use of the metal.

“Despite downside risks to fundamental demand, it is ultimately investor appetite that drives silver’s price action,” UBS said. “The price is therefore likely to be more buoyant than what may be suggested by supply-and-demand fundamentals.”

By Allen Sykora of Kitco News; asykora@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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