Could Silver Have Room To Grow? BofA Shares 2017 Forecast
“Anemic” demand for silver has been restraining the precious metal’s rally, with sustainable levels likely to stay between $15 and $20 an ounce this year, BofA Merrill Lynch Global Research said in a recent report.
“While declining mine supply has supported prices, commercial and non-commercial demand have been too weak to push prices up,” BofA said. “We believe a price range between $15 and $20 is sustainable in 2017.”
Despite recent silver price weakness, support remains, mainly due to falling supply as miners feel the pinch on margins, the Global Metals Weekly report said.
“The challenging operating environment has been mirrored in other metrics as well, with the number of drill holes for instance declining; given it takes years to bring a new mine to life, marked supply increases are unlikely in the medium-term,” BofA explained.
But, even though mine supply remains subdued, demand is not going up, which is keeping prices under pressure.
Lower demand has been led by commercial and non-commercial sectors, including falling purchases from the electronics sector, and poor ETF and coin sales, the report said.
“Looking at industrial usage first, consumption has been trending lower for years. Some of this was driven by the photography sector, but producers of electronics have also reduced silver purchases. Similarly, demand from non-commercial market participants has been anemic, with assets under management at physically backed ETFs declining year-to-date and coin sales in the US at multi-year lows,” the report said.
It is very possible for silver to hit $15 an ounce this year, if the selling pressures continues, the analysts wrote, adding that $20 an ounce is also not out of reach this year, “if non-commercial market participants raised buying slightly.”
A rally above $20, and towards $25 an ounce, would be a much harder ask and would require more speculative silver purchases “to the tune of +20%,” the report said.
Spot silver was up 0.37% and trading at $16.26 at the time of publication. Silver prices began to fall in mid-April after touching a five-month high of $18.65.