Investor Demand for Silver Is Projected to Remain Strong—CPM Silver Yearbook 2010

11 May 2010, 12:42 p.m. EST
By Terry Wooten
Of Kitco News


New York -- (Kitco News) --Strong investor demand pushed silver prices higher in 2009 and that trend is likely to continue in 2010, CPM Group said Tuesday in its Silver Yearbook 2010.

CPM Group’s annual Silver Yearbook discusses in detail shifts in investment demand for silver in 2009, along with the most likely trend for investment demand for silver this year. Investors worldwide have been buying large volumes of silver for four years on a net basis. Last year investors bought 209.7 million ounces of silver on a net basis.

“This was the third largest amount of annual net silver purchases on record, surpassed only by the 222.2 million ounces purchased in 1980 and the 226.0 million ounces estimated to have been added to investor holdings in 1968,” the metals consultancy said in a news release on the Yearbook. “CPM Group projects that investor demand will remain high in 2010, totaling 213.9 million ounces.”

Silver Yearbook 2010 was released at a briefing at Bloomberg headquarters in New York City. yearbook that as the financial market crises unfolded in late 2008, silver prices plunged to $8.79, on October 28, 2008. Silver had recovered slightly by the start of 2009. Silver settled at $11.49 (for the nearby active Comex futures contract) on January 2, 2009. Prices fell back to $10.44 on January 15, which proved to be the low settlement price for the year, CPM said. From there silver prices rose steadily throughout 2009, reaching a high for the year of $19.33 on December 2 and ending the year at $16.85. Silver prices rose further in early 2010, touching $18.82 in January.

CPM said The Silver Yearbook puts events in the 2009 silver market into the context of the aftermath of the financial crises and global recession that emerged in 2008. The freezing up CPM Group said in the of credit markets led to a massive liquidation by investors around the world of assets.  Silver was no exception to this move, CPM said.

“After falling sharply in the second half of 2008, silver prices recovered over the course of 2009,” CPM said. “The price recovery in silver prices largely was based on strong investment demand of historic proportions.”

Jeffrey Christian, managing director of CPM, noted at the briefing that silver prices had moved from $5 an ounce to around $20, back now to around $19 an ounce. Christian sees a ceiling of $20 to $22 an ounce, with a floor around $16.
He said silver prices could pull back during the second half of the year on seasonal factors. There is typically a lull in June, July and August. Prices tend to be stronger in December through April and May because a lot of material is bought during that period by commercial users.

Investors also are seasonal buyers, Christian said. He noted the old stock market adage of “sell in May and then go away” and said pattern often applies to the silver market “

On the other hand, Christian said, there has been good macroeconomic numbers in the US, in China, in India and other Asian countries so far during the first half of the year.

Christian said CPM thinks there will be some slowing of demand in the second half of the year and that will reflect the seasonal element.
 He said the uncertainty of the US elections and the continued turmoil in sovereign debt in Europe could make some investors back away from buying silver and gold for a period in the second half of the year.

“If things continue to be extremely problematic, investors may increase their silver purchases,” he said. “Our view is that they will, but they won’t increase their silver purchases so significantly as drive the price significantly higher and out of the range. But what they will do is they will support the price at a time of weaker demand in the second half of the year.”

Fabrication demand for silver declined sharply in the first half of 2009 before stabilizing through the rest of the year, the CPM Yearbook said. As 2009 progressed, demand for silver in many sectors began to revive. The final four months of 2009 saw healthy demand for silver in electronics, solar panels, flat screen display panels, and chemical catalysts.

“In 2009 jewelry demand for silver declined, but the drop was not as steep as those for gold and platinum jewelry,” CPM said. “Many individuals in markets around the world shifted to silver jewelry as a lower cost substitute for gold and platinum jewelry.”

CPM said total supply of silver rose a modest 2.4% last year. Most of the rise in total silver supply came from increase in secondary supply of silver as people sold silver jewelry and decorative objects to take advantage of higher prices. The Silver Yearbook also discusses how consumers were selling jewelry and silverware to raise cash due to the economic hard times they were facing. Mine production of silver was slightly higher. Peru was the largest producer of silver in the world in 2009, followed by Mexico. Last year silver mine output in Peru is estimated to be 123.9 million ounces, up 4.6% from 118.5 million ounces in 2008.

--By Terry Wooten of Kitco News,