(Kitco News) - Correcting to say the 2014 price forecast is $31, not $28
HSBC increased its 2013 average price forecast for silver by $1 an ounce to $33, and by $3 for its 2014 forecast to $31 from $28, citing an improved economic outlook and investment demand based on continued loose monetary policy, the bank said Wednesday.
James Steel, analyst at HSBC, listed four factors behind their forecast for higher silver prices. First is expected higher industrial demand, second is steady investor appetite for hard assets, third is strong coin and bar purchases and fourth is a bottoming out of jewelry demand.
“Greater industrial silver consumption is one of the most compelling arguments in favor of higher prices. HSBC economics forecasts growing industrial output in key silver-consuming countries such as South Korea, Taiwan, China, and the US. Good investment demand is also likely to support silver, based on ongoing accommodative monetary policies and economic uncertainty. Coin and bar demand is robust and after several years of decline, jewelry demand appears to be stabilizing,” Steel said in a research note.
He said in addition to physical demand by investors for silver, further growth in silver exchange-traded funds is likely. In the Comex futures and options market, speculative long positions “are high, but are not burdensome, and there is further room to build positions,” he said.
Because of rising demand, Steel said HSBC forecasts the global silver surplus will narrow to 188 million ounces in 2013, down from 210 million ounces in 2012.
HSBC said the price range for silver will likely be wide, between $27 and $37. The risk to its outlook, the bank said, is that rallies could be curbed by ample scrap supply, price-sensitive jewelry demand and modest growth in mine production.
“Refined scrap supply is slated to grow as recyclers meet tighter environmental regulations worldwide. Jewelry and coin sales may stall at higher prices, notably in the more price-sensitive emerging markets. Lastly, mine supply is growing creating more supply for investors to absorb, albeit at a tepid pace,” he said.
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By Debbie Carlson of Kitco News firstname.lastname@example.org