Silver Investment
Investment demand has risen considerably in 2009 and, including coins, is currently projected to exceed a net 207 Moz (6,440 t) this year.

The early part of 2009 was dominated by demand for physical metal and ETFs, as investors sought refuge in silver when fears over counterparty risk and the financial system remained rampant.

Following a ‘summer lull’, since September there has been a robust expansion in investors’ long positions in all investment arenas. Silver has benefited from gold’s strength, US dollar weakness, some investors’ rising concerns at the potential for higher inflation in future and the general growth in investors’ interest in commodities in a very low interest rate environment.

Overall, the January-October period saw a 100 Moz (3,110 t) rise in ETF holdings coupled with an increase of 171 Moz (5,306 t) in the ‘investor’ net long position in Comex futures. Investors’ bullion stocks have increased substantially this year on a net basis.

Silver Prices
For the first ten months of 2009, the silver price, basis the London fixing, averaged $14.06, down 12% year-on-year for the January-October period but up 50% on an intra-year basis.

Investment demand remains the main driver of the price and, in GFMS’ view, this has raised silver to well above the equilibrium level that would likely prevail in the absence of such investment.

Silver’s supply/demand fundamentals (excluding investment) should become more supportive in 2010, largely due to a recovery in fabrication demand. Taken in isolation this will be positive for the price. Nevertheless, a shrinking “surplus” between supply from mine production and scrap and fabrication demand means that less metal will have to be absorbed by investors, who GFMS forecast under their Base Case scenario may be somewhat less motivated next year to purchase silver as the economy gradually recovers, short term interest rates rise and the US dollar stabilises.

Courtesy: GFMS Limited

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