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Silver poised for bull market as economic woes boost demand
[NEW YORK] Silver headed for a bull market in its best start to a year in more than three decades, supported by speculation that slowing global economic growth will spur demand for havens.
Holdings in exchange-traded products backed by the metal have posted three straight weekly gains, while US government data show money managers raised their net-bullish wagers to the highest since August. An ounce of gold bought 71.4 ounces of silver on Thursday, compared with an average of about 58 over the past decade, signaling the white metal is inexpensive relative to gold.
Investors are returning to precious metals amid concern that US growth won't be enough to offset weakness in other countries. A collapse in oil prices has boosted the appeal of gold amid the threat of economy-damaging deflation, and prices this week topped US$1,300 an ounce for the first time since August. Policy makers at a European Central Bank meeting Jan 22 are expected to announce new stimulus measures.
"The drumbeat of stimulus across the globe is bringing people to silver and gold," Dan Denbow, a portfolio manager at the US$1.1 billion USAA Precious Metals & Minerals Fund in San Antonio, said in a telephone interview. "Also, the ratio between gold and silver got very, very inexpensive, indicating that silver had some catching up to do."
Silver for immediate delivery climbed 0.7 per cent to close at US$18.127 on Jan 21, according to Bloomberg generic pricing. A settlement at US$18.4064 would leave the metal up 20 per cent from the recent closing low of US$15.3387 in November, meeting the common definition of a bull market. Prices are up 15 per cent this month, the best start to a year since 1983.
Gold for immediate delivery fell 0.4 per cent to US$1,287.43 an ounce on Thursday, after advancing a day earlier to US$1,305.25, the highest price since Aug. 15.
"Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks," Caroline Bain, a commodities economist at Capital Economics Ltd in London, said in a telephone interview. "Also, the stimulus measures will at some point boost usage of the metal." Ms Bain said she expects silver to rise to US$20 by the end of the year.
Consumption is forecast to grow to almost 680 million ounces by 2018, up 142 million ounces from 2013, as demand in industries ranging from appliances to solar energy will rise, CRU Consulting said in a report on Dec. 10.
A tighter physical market will provide some support to prices this year, Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd, said at a conference in London on Jan 21.
The consulting firm expects global silver supply from mine production and scrapping to fall 2 per cent in 2015, and physical demand for uses including industry, photography and jewelry to grow 2 per cent. The physical silver-market surplus will shrink by 40 million ounces to 211 million ounces in 2015, according to Precious Metals Insights.
"Silver is rising along with gold as a hedge against uncertainties," George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC, said in a telephone interview. "Also, some funds are betting on future growth with so much money being pumped into the system."