Predictions for Silver Emphasize the Downside

By Brooke C. Stoddard

Demand for silver depends on both the metal’s attractiveness as an industrial raw material and its worth to investors as a hedge against inflation and currency devaluation. Since April, and more recently since remarks of Ben Bernanke about his intentions for curtailing some of the Federal Reserve’s “qualitative easing” of the last few years, speculators have regarded silver more for its hedge aspect than for its industrial one. The price of silver has been sliding and forecasters have been lowering their projections of what the ultimate 2013 average price will turn out to be.

Silver is already down considerably from its 12-month high last fall of more than $34 an ounce. In April it was still above $25 but late in the month fell to around $23. Since the Bernanke remarks it has fallen to under $20 an ounce. Silver watchers keep their eye on two trends: If the Fed cuts back its quantitative easing, interest rates will rise and the U. S. dollar will become stronger, making silver and gold less attractive as hedges against inflation and currency devaluation. But the Fed will likely only cut back on quantitative easing if the nation’s economy gains momentum, and if that happens, silver will experience increasing demand for industrial use (cars, mobile phones, solar panels, etc.) and jewelry. Presently, silver investors are paying more attention to the hedging properties of silver, and what they are seeing from the Fed they do not like.

In a report issued in April, Deutsche Bank reduced its prognosis for the average silver price for the year by almost 17% from a past report to $31 an ounce. It also lowered its prediction of a 2014 price by 10% to $34¹. Barclays said that silver would be the weakest of all precious metals this year.² The Swiss bank UBS lowered its prediction of an average 2013 silver price 17% to $24 and similarly lowered its 2014 average price 17% to $25. “Silver is taking its clues from the gold market,” one of UBS’s analysts wrote, noting that gold sentiment – a primary hedge against inflation – is “sour[ing] further.” UBS did not, however, alter its forecast for silver’s 2015 price under the theory that an improved global economy will raise industrial demand.

This general bearishness on silver prices is echoed by SilverSeek.com analyst G. E. Christenson, whose admittedly “simple” model predicts a low for silver this summer. But Christenson then forecasts a dramatic bounce so that sometime in the period March-October of next year silver prices may rise to $50-$60 and even higher over the winter of 2014-2015.

Silver has had a jolting ride since the financial crisis. The average price for the year 2009 was $14.67³ but this more than doubled to an average price in 2011 of $35.12. Silver actually neared $50 that year and remained for a period over $40. Investor demand remained strong in 2012 so that the average price for last year was $31.15, the second highest on record.⁴

¹ Kitco News

² Mineweb

³ Silver Institute

⁴ Silver Institute

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Brooke C. Stoddard is an Alexandria, Virginia-based writer covering business, manufacturing, energy, and technology.