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UBS Trims Silver Forecasts; Sees Boost From Improving Economy Longer Term

By Kitco News
Monday June 24, 2013 9:40 AM

(Kitco News) - UBS lowered its silver forecasts for this year and next after the metal was dragged down with gold lately, but the bank said Monday that it looks for a recovery longer term as an improving global economy means improved industrial demand.

“Silver continues to lack its own drivers at the moment and is therefore taking its cues from the gold market,” said analyst Joni Teves. “This means that the white metal would also come under pressure as gold sentiment sours further. And given silver's tendency to overshoot gold moves, the downside risks are greater in the short term. Further out, though, we do expect silver to gain favor on the back of its role as an industrial metal.”

UBS now looks for silver at $17.50 in one month, compared to a previous forecast of $26.0 previously. The outlook was revised to $20.50 for three months from $28. The bank trimmed its 2013 average forecast to $24 from $29 previously and its 2014 outlook to $25 from $30.

However, the bank made no change to its 2015 forecast and even revised its 2016 outlook higher to $25 from $19 previously. The bank also said it looks for the gold/silver ratio to trend lower toward 50 area in the next couple of years, meaning silver outperforms gold. The ratio, which measures how many ounces of silver can be bought with one ounce of gold, is currently around 65.

Silver could suffer further with gold if the Federal Reserve tapers and eventually cuts its asset purchases, known quantitative easing, UBS said. The market has been factoring in such an outcome during a recent price decline.

“But as such an outcome would only emerge if economic conditions have picked up sufficiently, some of the blow to silver would be offset by an increasingly positive outlook for industrial demand,” UBS said. “This dynamic is certainly at the back of investors' minds, and is quite clearly seen in the ETF space.”

Holdings of exchange-traded funds have held up better than gold.

“The resilience of silver ETF investors so far this year is very likely related to expectations that silver as an industrial metal will benefit from a global recovery,” UBS said. “In a sense, it is a similar trend as seen in PGM (platinum group metals) ETFs, but dampened by silver's much stronger correlation with gold.”

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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