Rising Investor Demand to Lift Silver to $50/Oz. in '12

Growing investor demand for silver will help boost its price above $50 per ounce by the end of next year, a top official at Thomson Reuters GFMS said Wednesday.

Conditions in 2012 are likely to remain highly supportive of further growth in investment demand, underpinning additional price gains, Philip Klapwijk, Global Head of Metal Analytics for the group, told an annual meeting of The Silver Institute.

Such growth would continue strong price gains so far this year.

Total world investment in silver this year is set to reach 278 million ounces, its second highest level in Thomson Reuters GFMS data series, Klapwijk said. Although a slight decline from last year, it will set a new record high in value terms -- $10 billion.

This year's rising investments have been reflected in big price gains. In the Jan. 1-to-Nov. 15 period, silver prices averaged $35.70 per ounce, a rise of 88 percent on a year-over-year basis over silver's 2010 average price.

Forecast

Thomson Reuters GFMS expects that by the end of this year the average 2011 price will be $35.66, up 77 percent from last year's average price.

Investor activity underpinned silver's moves this year, which saw it rally up to $50 in April before correcting sharply in both May and late September, he said.

The main factors driving these price moves were those impacting gold, namely the Eurozone sovereign debt crisis, inflationary fears, loose monetary policies and a weak U.S. dollar.

Demand/Supply

Besides investment demand this year, fabrication demand is expected to be up four percent this year.

Leading the gain in fabrication demand will be demand for coins and medals, which is set to establish a record high, achieving the largest gain, in volume terms, of any category of fabrication demand in 2011, Klapwijk said.

Both jewelry and industrial demand also are set to rise this year.

The total supply of silver is expected to remain broadly stable in 2011, as growth in mine production and scrap offset lower government sales and producer hedging.

Increased production from mines in Mexico, China and Russia will offset decreased mine production in Australia, Peru and the U.S. for an overall estimated growth in global mine production this year of four percent -- the ninth consecutive year that silver mine production has increased.

In 2012, total supply is set to rise next year, he said.

The supply of scrap silver, that is, old jewelry, sterling silver, pins and clips, will jump 10 percent this year, despite a declining contribution from photographic waste.

Caution

Precious metals remain vulnerable to investors wanting to raise cash to cover losses or meet other obligations.

If that phenomenon becomes pronounced next year it could scotch the Thomson Reuters GFMS outlook for 2012.

Downside risks remain, including the potential for the sovereign debt crisis to precipitate a liquidity crunch, impacting the 'real economy,' he said.