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HSBC Lowers ’15, ’16 Silver Forecasts Despite Growing Supply Deficit

Despite tighter silver supplies, commodity analysts at HSBC are lowering their price forecast for 2015 and 2016, the international bank said in a report Monday.

The bank said that it now expects silver prices to average $17.05 an ounce in 2015 and $18.25 an ounce for 2016, down from their previous forecast of $17.65 and $20.50, respectively. At the same time, the bank left its 2017 and long-term forecast unchanged at $12 and $24, respectively.

“While the underlying supply/demand fundamentals are supportive, weak investment demand has weighed on prices; a reversal in the USD and better commodity prices may improve investor demand,” the bank said in the report.

Like gold, the silver market has been negatively impacted by an over-powering U.S. dollar in the wake of growing expectations that the Federal Reserve will hike rates sometime this year, the analysts said; however, they do see some positives in the marketplace that should help support prices.

The bank said that the biggest support for the silver market will be a widening of the metal’s supply deficit. They are expecting the deficit to grow to 87 million ounces, from 5 million ounces last year.

According to the report, HSBC expects to see total silver supply to be about 1.025 billion ounces with demand totaling about 1.112 billion ounces.

“After many years of steady increases we anticipate a reduction in mine supply in 2015. Scrap supplies are also likely to decline,” the bank said. “Meanwhile low prices should help boost demand for coins and jewelry.”

HSBC is also expecting a weaker U.S. dollar to help the white metal. The analysts said that the bank’s currency team sees the U.S. dollar as highly overvalued and the rally since 2014 could be in its final stage.

“A change in the USD’s fortunes may throw a lifeline out to silver and could be a critical ingredient in a later year rally,” the analysts said.

Although there is potential for silver prices this year, a significant risk HSBC highlighted was investor demand, especially in silver-backed exchange traded funds (ETF). Unlike gold, silver ETFs have not seen massive liquidations.

“So far, investors have chosen to maintain existing positions. But should ETF investors choose to liquidate even a fraction of their holdings, then sizable amounts of bullion could appear on the physical market at short notice, with a commensurate negative impact on prices,” HSBC said.

“We estimate that a decline in silver ETF holdings similar to the 2013 fallout in the gold ETFs would release [230 million ounces] of silver onto the market, the equivalent of more than one year of scrap supply.”

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By Neils Christensen of Kitco News;
Follow Neils Christensen @neils_C


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