Bank of America Merrill Lynch (BofAML) estimated that there is a good upside potential in 2012 Silver prices. As per the bank, prices should average $34/oz, followed by $37/oz in 2013, because of continued interest in the metal.
Silver fundamentals have been improving in recent years for a host of reasons, including increased demand from emerging markets, somewhat reduced drag from the photography sector and higher usage from new applications. This suggests that gradual increases of silver quotations were justified. Use in applications like solar panels should increase going forward. Demand from the photography sector has fallen steadily and scope for further large reductions in off take is limited.
BNP Paribas
Silver’s own fundamentals have softened in 2011 as economic growth slumps and that pressured industrial demand. Silver prices should average around $35.75 an ounce in 2012, says BNP Paribas. “The metal could start outperforming gold when risk appetite rebounds, potentially driven by the announcement of a third round of quantitative easing measures in the US,” they say.
With investor demand subdued and the industrial side underperforming, there is little reason for silver to stop following gold, they say. “On a positive note, however, it is harder to see further liquidation of silver positions from here as long as the global picture does not deteriorate further,” the bank says.
TD Securities sees silver’s average price at $36.45 in 2012, with pressure on the market coming if systemic risks grow and the economic outlook deteriorates. “But, we see silver correcting more than gold due to its hybrid nature— both a precious and a base metal,” they say.
It’s possible that a “correction to materially below $25/oz” could happen as “relatively high margin requirements and high volatilities are factors which should contribute to the possibility of a sharp correction,” they say.
Although silver is trading at 50% above the marginal cost of production, that implies a scarcity or a shortage. “However, TDS models are suggesting that the silver market will be oversupplied this year and over the next two years, as production grows, investors get out of physical sliver positions and demand growth moderates,” they say.
Barclays said silver should show a high of $45 an ounce and a low of $22, with an average of 32.50. The report said silver displayed its breadth of volatility in 2011, tumbling from the strongest performing precious metals in the first half to close the year as the weakest. "Silver is likely to remain the most volatile precious metal and take its cue from gold prices hitting new highs to outperform its sister metal," Barclays said.
MKS Finance looks for silver to remain in focus this year as an alternative to gold in investors’ portfolios, but nevertheless describes itself as “only marginally bullish” on the metal. MKS looks for an average of $36 an ounce.
“We don’t expect the physical demand to drastically increase and the ETF inflow to remain moderate,” MKS said. “As a net importer, China will remain a key factor for the physical silver demand throughout the year. Any rally in gold could prompt speculative buying in silver, resulting in short-lived price spikes. The lack of strong physical interest and support shall dominantly result in speculative trading. Again, silver is set to remain very volatile and to trade in wide ranges with erratically rallies and sharp downside corrections.”
Sharps Pixley forecasts that silver will average $37.35 an ounce in 2012. Analysts expect heightened price volatility, with investors seeing silver as a leveraged play on gold.
“This in part reflects heightened political and economic uncertainty, which plays havoc with the commodities markets,” Sharps Pixley says. “We expect to see silver holding robust interest amongst the speculator community and gaining in respect amongst the investor community with a tightening market justifying prices well above the $20 level.”
However, analysts comment that slower global industrial output coupled with a firm U.S. dollar in the first half should provide a drag on runaway silver prices, although there is a possibility for a brief price spike based on “difficult” geopolitical concerns. “Should economic conditions prove less difficult than feared in H2, then there are grounds for saying that silver could benefit as a recovery stock of sorts based upon its good industrial applications.”
Commodity Online Research estimated that silver prices may witness moderately bullish trends in 2012 on global macro-economic uncertainties and possible fall in industrial demand for the commodity.
Deutsche Bank is forecasting $37 for silver in the first quarter, $39 in the second and $44 in the third and fourth quarters.
According to Professional Numismatists Guild (PNG) silver in the first quarter varied from $24.35 per ounce to $57.50 with a mean average of $34.04, and from $23 to $130 with the average of $48.73 by the end of 2012.
Six factors would drive the price of silver higher
--There are more (probably much more) than five Billion ounces of Gold bullion collecting dust in vaults around the world, and more is added to the vaults everyday because more is mined than is used as jewelry or industry or investment products.
--There is less (probably much less) than one Billion ounces of silver bullion available for consumption by industry, and that number is further depleted every day because less is mined than is either consumed by industry or is converted into more valuable investment products.
--Perhaps 70% of the silver currently being mined is a byproduct from base metals mining. As the world continues to fall into a deeper inflationary depression, the amount of base metals that will be mined will reduce as worldwide construction demand decreases with the slowing economy. That inevitable reduction in base metals mining will further exacerbate the supply deficit in silver relative to the demand.
--The industrial applications that consume silver cannot reasonably substitute other alternatives, so those industries must have silver to continue their business. The amount of silver used in each product is small, so the use of silver is price inelastic because industry will continue to consume silver even after the price increases substantially from current levels. The real wild card is that all industries have migrated to just in time purchases of the Silver that those industries must have. When news gets out that one industry is having trouble getting delivery on cheap bullion silver, there will be a stampede by all industries to lock in the physical they must have to continue production.
--The Banksters have been artificially depressing the price of silver for decades, and those criminals continue to squelch price rises in silver by selling huge quantities of paper that is not backed by anything. The investment world is beginning to realize that paper promises have little meaning, and that smart investors need to hold physical. As that migration to physical accelerates, the paper market will become much less relevant and the Banksters will be overrun with demands for physical. The explosion in the price of silver will be so strong that it will even be able to carry its little brother Gold to higher prices.
--One silver problem is that buyers get too much metal for their money. As silver rises, it will not take as much space in secure storage, and big money people will consider putting some of their wealth into silver. That buying by big money will drive the price of silver exponentially higher, as each increase in price makes silver that much easier to store. People who prefer to buy gold because silver is too heavy and bulky will be happy to hear that someday they will be able to get much less silver for their gold, because the price of silver will increase so much more rapidly.
