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Silver prices are expected to average $35 an ounce in the first quarter of the next year while gold prices could be at $1850 per troy ounce.

26 Nov 2012

LONDON (Commodity Online): Silver prices are expected to average $35 an ounce in the first quarter of the next year while gold prices could be at $1850 per troy ounce, said Barclays Capital in a research note.

According to the British bank, silver is the strongest-performing precious metal so far this year but true to form has traded the widest range across the four precious metals. This volatility continues to reflect the lack of support provided by the metal’s fundamentals while sizeable growth in investment demand maintains the necessary scope to plug the gap and drive prices higher.

According to Thomson Reuters GFMS’ (GFMS) interim silver market review released last week, most of the trends highlighted were in line with our own expectations but there were two exceptions, scrap supply and industrial demand, which painted a weaker supply and demand picture, Barclays added.

GFMS expect silver to trade up to the $36/oz before the 2012 year-end (Barclays Q4 12: $31.5/oz) and possibly over $50/oz during 2013 on the back of investor interest (Barclays 2013 annual average forecast: $32.5/oz).

"In terms of scrap, GFMS expect 1% y/y growth of just over 100 tonnes to a fresh all-time high on the back of higher recycling in India in jewellery and silverware whereas we have estimated a decline due to the ongoing decrease in photography usage. While we had certainly estimated silver industrial demand to slow this year to growth of less than 1% y/y from the drop last year, GFMS expect the contraction to continue into 2012, falling by 6% y/y on the back of heavy destocking and pressure from thrifting and substitution," they noted.

"In line with our own estimates, on the supply side, GFMS expect mine output to grow to yet another record high and official sector selling to soften. Demand is expected to soften overall with photography maintaining its secular decline and coin sales easing from the tremendous strength in 2011, in turn leading GFMS to estimate a surplus of 7.5kt in 2012 to be absorbed by investment demand, compared to our surplus of 5kt. Silver has certainly benefitted from recovering investor demand with ETP flows into open-ended funds up almost 800 tonnes, compared to outflows of almost the same magnitude last year, while including closed funds, flows are up around 1000 tonnes," Barclays concluded.


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