Forecasts Included in GFMS’ Annual Review of the Silver Market Looking Shaky

By: Jane Tindall
Jane Tindall
I've worked within the banking & financial regulation industry for over 10 years. Now, I report on these sectors… read more.
on Aug 6, 2012

The 2012 edition of the World Silver Survey, the annual silver market review, conducted by Thomson Reuters GFMS on behalf of the Silver Institute, revealed that silver price volatility in 2011 has deterred investors in the white metal. This trend has put silver prices on course for a correction of as much as 10 per cent over the present period, the report prognosticates.

In 2011, silver was one of the highest-profile commodity investments, with prices increasing by some 59 per cent in the first quarter, reaching a three-decade high of $49.51 (£31.7) a troy ounce, before falling 30 per cent in six days. “To say that silver was on a roller-coaster ride during 2011 would be something of an understatement,” GFMS said in its annual review of the market. According to Philip Klapwijk, global head of metal analytics at the consultancy, these unstable silver prices have put some investors off.

The recent GFMS data shows that despite the rising supply and volatile silver prices in 2011, investment demand provided the necessary support for silver to perform well during the year. But so far, the investment scene in 2012 has been affected by the past year’s dramatic price moves which have suppressed investment demand. Currently, small investors are providing the main support for the precious metal on the market. The average investor, however, is not showing great enthusiasm in silver are an investment, with prices having remained volatile in the first quarter of 2012.

!m[](/uploads/story/234/thumbs/pic1_inline.png) “There is a greater wariness to silver now than a year ago,” Mr Klapwijk said. “One of the things that has been attractive about silver to a lot of people is that there has been a big trading range. But the speed and scale of setbacks to prices last year definitely surprised and concerned some investors.”

Mr Klapwijk also predicted that in the short term silver would continue this predilection to volatility, falling as low as $28 (£17.9) an ounce in the coming months on the back of lowered investment demand. The official GFMS data supports his statement, forecasting a trading range of $28.70 (£18.31) to $32.90 (£20.99). In the second half of the year, however, GFMS sees more positive silver performance. In reality, prices dropped as low as $27 in July and are currently mildly fluctuation around a baseline of $28 as of the beginning of August. Whether the remainder of the year will show the Report’s prognosis to be borne out remains to be seen. Overall for 2012, the consultancy forecast a low perhaps a bit below $29 (£18.5), $27 has been the reality, and a high just above $40 (£25.5), producing an average trading range of $13 (£8.3). Since the release of the report, when silver was sitting at $32, a steady bear market has seen prices drop to the $27-$28 zone with $27 proving so far to be the point of resistance. According to

Mr Klapwijk, a trigger to fresh investment in silver, such as another phase of the Eurozone debt crisis or further monetary policy easing in the United States could rekindle investor interest in the white metal and drive prices above $40 towards the end of the year. So far in 2012, silver has been trading between $27.00 and $37.23, a range of $10.23, with average price volatility for the first four months of the year at 34.4 per cent. Either the report’s prognosis will be quite noticeably wide of the mark, or now could be a good entry point. The last four months of the year look like proving quite interesting as a gage to GMSF’s analyses.

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