Industrial demand for Silver remains weak and thus the price has failed to deliver on high hopes earlier this year; the price has rather followed the ebbs and flows of investment demand, in much the same way as Gold over the past several weeks.

In fact the silver price had slightly underperformed gold, down 2.4% from the end of May through to July, compared with the 1.3% fall in gold; the gold: silver ratio has nudged up to 66-67 in early July, from less than 65 on 23 June.

But although weak, demand has been improving in H1 2010. Chinese imports of silver, for example, have risen year-on-year in each month since November 2009, although the figures are skewed because of the deep recession that year.

May’s imports were 482.9t, up 72% on the same month in 2009, but importantly are also up on the same month in 2008 – before the full extent of the financial crisis became apparent. In the first five months of 2010, imports stood at 2176.5t, up 52% on the same period in 2009. China’s imports serve both industrial and Jewellery demand and ought to be price supportive.

The same holds true for Indian Silver imports, which in US dollar terms were $309.8m in June 2010, up 854% on the year, while in the first six months of 2010 they are up 579%, at $1.69bn. India’s appetite for silver has been boosted because Gold has become too expensive at current prices. But should the gold price fall then we expect much of this silver will be cashed in for gold.

Short term outlook on Silver

While silver more or less tracks gold over the traditionally quiet Q3 period, we expect prices to remain firm and possibly advance going into Q4. The medium to longer term prospects in industrial demand for silver are extremely positive and we would not be surprised to see the silver price test $20/oz in H1 2011. Short-term London fix: $17.40/oz-$19.20/oz.

Courtesy: ABN AMRO - Metals Monthly July 2010 - ABN Amro/VM Group

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