CPM Group sees silver price mostly range-bound for next two years

In an interview with iNVEZZ.com Jeffrey Christian, managing director of CPM Group, a commodities research firm, and author of Commodities Rising: The Reality Behind the Hype and How To Really Profit in the Commodities Market (2006), said he does not foresee a sharp upward correction in silver prices.

“We are on the side of the people who see no major reason for silver prices to rise sharply,” Mr Christian said on Friday.

This analysis contrasts with the views of researchers who spoke during this month’s Canadian Investor Conference, such as Ed Steer of GATA and Casey Research who considers “silver [to be] the most undervalued of all the precious metals,” and who sees the current prices as a buying opportunity, according to silverinvestingnews.com.

However, CPM’s analysis does not conclude silver prices are poised for a fall, either. Mr Christian predicts the white metal will be range-bound between $18 and $25 a troy ounce over the next several years. CPM sees silver between “$20 and $21 for the most part over the next two years.”

In 2010, CPM correctly predicted that the gold and silver markets were reaching a cyclical peak and were going to move lower. Back then, Mr Christian put the price of gold between $1300 and $1400 by 2013 and that of silver at around $20 for the same period. “The prices [of gold and silver] are going to move sideways from 2013 until about 2015, and then we think gold prices will rise again. With silver, it really depends on what investors will do.”

“There’s a tremendous amount of silver in the market, and there’s a tremendous amount of silver that’s likely to be produced over the next few years. There’s an increased surplus of new supply coming on stream even with silver between $18 and $20 an ounce. If investors want to buy as much silver over the next several year as they have been buying over the past few years, the price of silver will rise. But if investors don’t want to take the surplus the price is going to fall.”

Industry sources appear to agree with Mr Christian’s analysis. Although half of silver’s global supply is used toward industrial applications, Mitchell Krebs, Chief Executive Officer of Coeur Mining Inc., calls investment demand “The big X factor” that will determine the direction of silver price.

Although “net investment demand for silver fell from about 180 million ounces in 2012 to 105 million ounces in 2013. We also saw a big increase in coinage demand, primarily the United States and Canada. We also saw around 50 million ounces of 1000 ounce bullion bars being absorbed primarily by investors. If we add that 50 million to the 105 million, we will notice that total gross investment buying probably went from 180 to 155 – a much smaller decline than the net number suggests. Large investors, who had bought silver earlier, were getting rid of it last year and were moving their assets into stocks and real estate. Smaller investors in the United States were taking the opportunity of the lower prices to stock up on silver coins,” the head of CPM group said.

Investment demand for silver dipped in 2013 to its lowest level since 2008, according to CPM Group’s 2014 Silver Yearbook.

However, it “was still the tenth highest level of annual investment demand between 1960 and 2013. This sharp decline yet relatively high level of investment demand was reflected in the price of silver, which was down around 24% [in 2013] (on an annual average basis) from 2012 but was the third highest annual average price of the metal ever.”