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Silver price can regain its luster, push back above $18 - Silver Institute

Kitco News

(Kitco News) - The silver market is struggling to attract buying momentum but one precious-metal advocacy group remains optimist that prices will bounce back and push back above $18 an ounce.

In its 2020 market outlook published Wednesday, The Silver Institute said that it sees silver prices rising 13% to average the year around $18.40 an ounce. However, analysts added that investors should continue to see periods of volatility.

“The Silver Institute believes that macroeconomic and geopolitical conditions will remain broadly supportive for precious metals, encouraging investors to stay net buyers of silver overall, a development that should lift silver prices higher this year,” analysts said in the report. “However, there will be times when silver will have to contend with issues, such as the current health crisis in China, which could hit that country’s economy hard.”

The comments come as silver prices currently trade at the lower end of their recent range. Despite the recent weakness, the market continues to hold above critical support around $17.20 an ounce. March silver futures last traded at $17.485 an ounce, down 0.64% on the day.

Looking at market fundamentals, industrial demand is expected to remain the critical sector to watch, The Silver Institute said. Although growing concerns over the health of the global economy is impacting demand, the analysts said that growing electrification in the auto industry and evolving technology will continue to drive silver industrial demand.

“We foresee a 3 percent increase in silver industrial demand, which would be broadly in line with the International Monetary Fund’s forecast of 3.3 percent for global GDP [gross-domestic-product] growth this year,” the analysts said. “Silver use in the automotive industry, for instance, is expected to enjoy impressive growth. Despite weaker global car sales, silver demand should benefit from vehicles’ rising sophistication and electrification. Silver use in 5G-infrastructure and upcoming intelligent electronics is also likely to fuel demand gains.”

However, the Institute also warned that the energy sector could see lower silver demand in 2020. The analysts highlighted a mixed outlook for silver in solar panels.

“Ongoing government support for renewables to counter climate change and falling prices for finished PV [photovoltaic] modules should boost global PV installations. Actual silver consumption, however, could be offset by continued efforts to reduce silver loadings. Overall, silver demand in the PV sector is forecast to edge slightly lower, but even so, the total will remain close to record highs,” the analysts said.

The Institute also sees solid investment demand for silver, particular for silver-backed exchange-traded products.

“Profit-taking in ETPs is likely to be limited, even with a price rally. These holdings tend to be relatively sticky, which reflects the importance of retail investors in this market, who often adopt a longer investment horizon than many short-term professional investors. Meanwhile, continued macroeconomic uncertainties should also favor safe-haven assets,” they said.

Looking at silver supply, the report said that mine supply is expected to grow by 2%. In total the silver market should see a surplus of 15 million ounces, “the lowest in five years,” the report said.

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