Silver Outlook 2013: Industrial Demand the Wild Card in an Investment-driven MarketFor nearly a decade, rising investment demand for silver — from coins to futures to exchange-traded funds — has been the primary driver behind a bull run that has taken silver prices from a meager average of $4.85/oz to highs not seen in 30 years. 

Since the 2008 crash, investors have counted on continued central bank quantitative easing measures to devalue global currencies and push gold and silver prices higher. Now, many analysts are once again looking to massive liquidity expansion and the resulting currency devaluation to drive safe-haven investment in precious metals.

Silver guru David Morgan said he expects investment demand growth to continue in 2013 for two reasons:

  1. Ongoing economic uncertainty will push big-money investors and financial institutions toward hard assets like precious metals, driving up the cost of gold.
  2. In the face of rising gold prices, retail investors will be drawn to silver’s relative affordability.

Morgan is confident that silver will hit $50 an ounce in 2013.

Industrial demand a factor for silver in 2013

The silver market’s historical proclivity for wide upswings and even wider downward spirals has earned it the moniker “the Devil’s metal.” At the start of 2012, silver investors were warned to expect more of the same. Silver is a much smaller market compared to gold; that and its dual nature as both a precious and industrial metal are responsible for most of the white metal’s volatile and unpredictable price performance.

Silver’s stellar performance in the first quarter of 2012 gave hope to many a silver bug that the precious metal was on track to reach its record high of $50 an ounce for a second year in a row.

But industrial demand fell by about 6 percent for the year and the decline took some support out of spot prices. Silver barely broke the $35-an-ounce range during a short seasonal rally in the fall. In the last quarter of 2012, silver has lived up to its reputation, with 100-day historical volatility nearly twice as high as that of gold, as Silver Investing News reported Friday. That has left silver fighting to stay above $30 an ounce.

In 2013, silver’s industrial demand side, which accounts for well over half of all silver demand, may continue to be the wild card in price performance for the white metal. Given that global economic uncertainty is expected to carry over from last year, Barclays (LSE:BARC) has said that in 2013 silver will most likely retain its position as the “most volatile” amongst metals in terms of “price action.”

If the financial crisis in Europe worsens and Washington fails to prevent the US from falling off the proverbial fiscal cliff, economic growth could slow, meaning that industrial demand for silver will suffer. Such a reality could have a far greater impact on spot prices given that the market is already oversupplied.

However, analysts are banking on improved economic growth in China and continued strength in emerging economies to support the global economic recovery going forward. Bank of America (NYSE:BAC) analysts have forecast an average of 3.2 percent in global economic growth in 2013.

The new year brings the possibility of modest growth in silver industrial demand if the global economic recovery continues. A recent Thomson Reuters GFMS report shows that industrial demand for silver will gain 6.7 percent in 2013 and 6 percent in 2014; a much-needed turnaround from last year’s losses and a boon to silver prices if the other side of the coin, investment demand, proves strong in 2013.

2013 average silver price forecasts

Analyst outlooks for the average silver price in 2012 — ranging from $30/oz to $52/oz — revealed just how tricky it can be to predict the metal’s performance, and 2013 is no different. Below are a selection of forecasts for silver’s average price performance in the new year.

CPM Group $28.70/oz

Barclays $32.50/oz

Societe Generale (EPA:GLE) $34/oz

Morgan Stanley (NYSE:MS) $35/oz

UBS (NYSE:UBS) $36.80/oz

BNP Paribas (EPA:BNP) $39.05/oz

Commerzbank (ETR:CBK) $40/oz

TD Securities $40.52/oz

Deutsche Bank (NYSE:DB) $44/oz

 

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

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