2012 Silver Forecasts: Are Analysts On Target?

By Michelle Smith - Exclusive to Silver Investing News

January marked silver’s best year opening performance in nearly 30 years. The metal closed the curtains on 2011 at $27.91/oz. This year its average price thus far is $31.24. For many, this may come as a surprise, but should it? Forecasts by analysts were certainly abundant, but have they served as accurate guidance for investors?

In our 2012 silver outlook, sentiment was described as “cautiously positive.” Analysts had issued widely ranging forecasts with a strong trend of predictions that the average price per ounce would be between $31-36. Based on their reports, we concluded that industrial demand would provide support for the metal’s price, but investors would be the essential component in the market’s performance.

So far in 2012, silver has moved in the direction that most analysts suggested that it would: up. For example, Scotia Mocatta’s report expressed beliefs that silver would have another high run before the market experiences a correction.

However, also prominent among analysts’ outlook for silver was fear. Many, though expressing positive expectations for the metal’s performance, appeared to expect investment trauma from the volatility and resulting losses in 2011 to hinder investment demand in 2012 as investor’s dressed their wounds.

Anne-Laure Tremblay, Precious Metals Analyst for BNP Paribas, forecasted that heightened uncertainty should put a lid on prices in the first months of the year, but the metal could regain some shine when risk appetite rebounds.

It appears that many investors regained their nerve quicker than expected.

In January, HSBC slashed its gold outlook due to a weak closing quarter of 2011. Silver ended the year in worse shape, down 10 percent, but still the firm left silver’s forecast unchanged at $34, noting that they were bullish on solid retail investment demand for coins and small bars, and expectations that ETF demand will recover.

Bloomberg data confirmed this is indeed happening, reporting that 196 tons have been added to ETP holdings.

CME Group reported an increase in net long contracts and net short contracts. COMEX silver stocks were at the highest levels since October 2008, the group stated in its morning report, adding that they had increased 14 of the last 20 days.

Silver demand from China was strong as expected during the week of the Chinese New Year festivities. But, unexpected for many were reports that demand did not fall off immediately afterward. Additionally, silver is proving to be a hot commodity in India, where investors are showing a strong preference for the metal.

Morgan Stanley slashes early 2012 silver forecast

Morgan Stanley has significantly reduced its forecast for the metal. It still expects silver to make gains this year, but believes it will be more moderate than previously expected. In spite of a strengthening dollar, the firm expects the white metal to have safe haven appeal.

Instead of an average price of $50, Morgan Stanley now foresees silver averaging $35.48. Though this is a major downgrade of silver by the firm, it is one that brings their forecast closer in line with the bulk of the analysts’ predictions.

A Bloomberg survey of 13 analysts resulted in an average price of $37.50 in Q4. While the London Bullion Market Association tracked 25 analysts who predicted $33.98 as the average silver price for 2012.

Analysts also tended to warn that economic data would spark volatility. The expected ranges between silver’s highs and lows were often $20 or more, with the metal’s lows often forecasted in the lower $20s. However, thus far, the market has been shaking off news that it likely would have wreaked havoc last year.

Both the International Monetary Fund and the World Bank cut their global economic growth forecasts for 2012 in January, yet the metal still rallied. Thus far the metal has not closed below $28 and the price range has been limited to about $5.

This is not, however, to suggest that warnings of volatility should be ignored. Silver earned that reputation as a volatile metal and it should not be dismissed.

Forecasting can be an extremely difficult task, especially with a metal like silver. There are still almost 11 months before it will be determined whether analysts were on target for 2012. But, we would like to know what you think now. Should forecasts be dismissed or viewed as valuable resources? Take our poll and let us know.