Thursday, Nov 18, 2010
(Updates with comments from GFMS chairman Phillip Klapwijk.)
By Tatyana Shumsky
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Silver prices will rise to fresh 30-year highs next year and trade above $30 per ounce thanks to investor interest and continued recovery in industrial demand, according to consultancy GFMS Ltd.
Silver futures have rallied 65% since the beginning of 2010 and set high of $28.906 per troy ounce on the Comex division of the New York Mercantile Exchange on Nov. 9. That is the highest level since $29.050 on March 17, 1980. Since then, it has slipped to settle Wednesday at $25.511.
In recent times, silver has gained in popularity because investors have come to view it as a cheaper alternative to gold.
GFMS forecast the silver rally will likely continue past $30 next year despite the recent retreat. Silver has sold off from its highs in the last week along with many other commodities, including gold.
"We are doubtful such elevated levels will be sustained throughout the year and, as a result, we see annual average either side of $28 as more likely," London-based GFMS said in an outlook report. "A retreat from over $30 would not necessarily imply an end to the multi-year rally in 2011."
GFMS forecasts a 5% rise in silver supply in 2010, ending three years of flat production rates. Global mine production will grow by 3% in 2010, or 24 million ounces, as higher output in Mexico, Argentina, Chile and Australia outpaces a 5% decline in Peru. Silver scrap supply is seen rising 10% as industrial and jewelry sources further augment supply.
But growing investor demand for silver will outpace these gains, GFMS said. Investment demand for silver, including all coins and medals, is forecast to hit an all-time high of more than 210 million ounces in 2010, according to GFMS records. The consultancy projects further growth and new records in investor holdings for 2011.
Industrial demand is expected to increase 18%, or around 65 million ounces, in 2010, with sustained but less dramatic growth of 4% in 2011. Silver is used in photovoltaics and catalysts.
Meanwhile, fabrication demand will rise 10% this year, with modest growth expected in 2011, the firm said.
GFMS expects silver demand from coin minting to grow 23% this year, with total demand from the sector projected to hit a record according to the consultancy's data.
Silver has been a controversially traded metal throughout its history on the Comex, with traders repeatedly calling on the Commodity Futures Trading Commission to investigate possible price manipulation in the contract.
Recent calls by CFTC Commissioner Bart Chilton to revive the regulator's two-year old investigation of the silver market have brought back memories of the 1980s for many traders. The most widely publicized case of silver price manipulation occurred in 1985 against the Hunt brothers of Texas, who purchased large volumes of silver to drive up prices.
"Silver has dramatically out performed its rivals this year," Phillip Klapwijk, chairman of GFMS, told attendees of The Silver Institute dinner Wednesday night.
"Photographic demand continues to decline as digital technology" continues to displace silver technology, Klapwijk said.
"Government sales have increased a little bit but still not supplying very much to the market compared to gold," he said.
"There's been a tremendous runup in ETF holdings over the past several months ... These have been very sticky investments so far," Klapwijk said.
"Silver is seen as a more economical unit price to gold...Silver is almost like a leverage play on gold for some investors," he said.
"Unlike gold, silver mine production has been growing over the last decade," he said.
"China has moved to become a net importer of silver, which is a significant development," he said.
-By Tatyana Shumsky, Dow Jones Newswires; 212-416-3095; tatyana.shumsky@dowjones.com
(END) Dow Jones Newswires
November 17, 2010 21:13 ET (02:13 GMT)
