Commodities | Nov 20 2009
By Chris Shaw
Investment in precious metals is on the way up, as evidenced by the gold price pushing through the US$1,100 per ounce mark in recent weeks. In the view of precious metals consultancy GFMS silver has also benefited from the combination of a stronger gold price, the weaker US dollar, inflationary concerns and a generally greater acceptance of commodities as an investment option.
GFMS’s latest analysis of the silver market suggests demand should be strong enough for the silver price to push above the US$20 per ounce level in the short-term, which compares to the metal’s average price for the first 10 months of 2009 of US$14.06 per ounce.
Even allowing for higher prices, GFMS sees the supply-demand environment becoming even more supportive for prices in 2010, reflecting its view there will be a recovery in fabrication demand next year. Taken on its own this should be supportive for prices, but the added positive is an expectation of a shrinking surplus between supply from mine production and scrap and fabrication demand.
Fabrication demand has been weak this year and for 2009 should finish around 11% lower than for last year, but according to GFMS 2010 will see a solid recovery, while industrial demand is also predicted to return to higher levels next year.
As GFMS points out, this improvement in industrial and fabrication demand means less metal will need to be absorbed by investors to support the price. Investors have certainly done their part as demand has been very strong in 2009 and should exceed a net 207 million ounces, with all sectors of the market including Exchange Traded Funds, buyers of bullion and coins and futures market investors proving supportive.
On the supply side 2009 looks like being flat on 2008 with respect to total supply, as some minor growth in mine production of around 2% is being offset by lower supply from scrap, forecast to fall by around 4%, and a sharp fall in government sales.
In terms of prices, GFMS expects an average price for silver this year of US$14.78, which would be a marginal fall in year-on-year terms. In 2010 it sees the average price falling slightly from this year’s level, notwithstanding its expectation of higher prices in the short-term.