Make Kitco Your Homepage

Metals Focus: Silver Prices To Get Lift Late In 2018, Faces Headwinds For Now

Kitco News

(Kitco News) - Silver prices may remain impeded by a “challenging environment” in the foreseeable future before rising later in the year, eventually poking above $20 an ounce, said Metals Focus Thursday.

Analysts released a forecast for the precious metal in conjunction with the London-based consultancy’s Silver Focus 2018 report. They say silver will remain an oversupplied market this year, but look for investment demand to pick up the slack.

Silver has been range-bound so far in 2018 between a roughly $16-$18 range, with gold also range-bound amid a lack of institutional interest, Metals Focus said. Precious metals have been held back by a favorable macroeconomic backdrop, rising bond yields, subdued inflation and movement in equities.

“For 2018, we expect the challenging environment for silver to persist over the near term,” Metals Focus said.

Still, analysts said they look for conditions across global financial markets to become more supportive for precious metals later in the year.

“For example, political developments in Italy, periodic spikes in geopolitical tensions and the potential for a destabilizing trade war should all boost sentiment towards precious metals,” Metals Focus said. “As a result, silver is likely to spend the last few months of 2018 trending upwards. This, in turn, will see the full year average price rise by 2% y/y [year-on-year] to $17.40.

“As such, we believe a venture above $20, even if only short-lived, is likely during the final quarter of this year.”

Analysts said their outlook is based on the idea that the U.S. dollar will weaken later in the year in part due to expectations for tighter monetary policy in Europe. Further, the U.S. Treasury yield curve could flatten further, which would be bearish for the dollar.

“Another positive factor for precious metals is the outlook for equities, particularly U.S.-based stocks as economic growth in the U.S. starts to lose momentum,” Metals Focus said. “As a result, following notable gains over the past few years, volatility is likely to re-emerge, and sharper moves could become more frequent. This could lead to some diversification in favor of precious metals, which should also include silver.”

Metals Focus also looks for real short-term interest rates to remain negative in the major economies for the rest of this year and beyond, thereby reducing the so-called “opportunity costs” – or lost interest income -- of holding zero-yielding assets such as precious metals.

Trade protectionism will raise concerns about global and U.S. economic growth, and this could lead to other geopolitical issues, Metals Focus said. The consultancy called Italian politics a “wild card,” with worries that a new populist government will favor policies that could fuel a new debt crisis in Europe. “Ultimately, this could boost the appeal of safe-haven assets,” Metals Focus said.

In assessing supply-demand fundamentals, Metals Focus said physical investment in silver should improve by 6% this year, although this is a gain from a historically low total in 2017. Other critical areas of silver demand -- industrial, jewelry and silverware -- will also grow, but only by 1%. Meanwhile, these gains will be partly offset a 1% rise in mine production.

“As a result, 2018 is expected to see another year of oversupply, albeit less so than during 2016-17,” Metals Focus said.

This means that the market will rely on professional investors absorbing a “considerable level” of excess supply for 2018 that is forecast at 37.2 million ounces, or 1,158 tonnes, Metals Focus said.

“Given the aforementioned macroeconomic and geopolitical backdrop, there is plenty of scope for these fresh investment inflows into silver to emerge later this year, especially among institutional players,” the consultancy said.

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 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.