The silver lining could be in your pocket

'Silver has been by far the best performer this year … we think that the more industrial precious metals, notably silver, will outperform in 2015,' says Simona Gambarini, a commodities economist at Capital Economics.

While analysts may be divided over silver’s direction on a large scale, the volatility in its price moves provides scope for day traders to cash in on the daily fluctuations.

Silver continued to mirror gold’s performance in April, albeit in a more volatile fashion. After rising above US$17 per ounce at the beginning of the month, the price plummeted to $15.70 towards the end of the month. Since then, silver has recovered modestly, trade ranging between $16.10 and $16.70.

Yesterday, silver for immediate delivery rose 0.3 per cent to $16.5955 an ounce. The price has averaged $16.60 this year.

Andrew Leyland, the manager of precious metal demand at Thomson Reuters GFMS, expects the price of the industrial precious metal to decline 14 per cent this year to $16.50 an ounce from the average fixing price of $19.08 last year.

On the other hand, Capital Economics expects an upside of $23 an ounce towards the end of the year. The rise, however, is expected to be gradual, with prices forecast to reach $20 an ounce in the second quarter and rise steadily to $21.50 in the following three months.

“Precious metals prices have been relatively stable in recent years, compared to other commodity sectors,” said Simona Gambarini, a commodities economist at Capital Economics. “Within the precious metal sector, silver has been by far the best performer this year. We remain positive on the sector overall but we think that the more industrial precious metals, notably silver, will outperform in 2015, in line with our positive outlook on the US and Chinese economies.”

Saxo Bank’s outlook is more subdued. “We see the current trading range as being between $15.40 and $17.40 [an ounce]. A break below could target the December 2014 low at $14.28, while a break above could set up a test of the January high at $18.50,” said Ole Hansen, the head of commodity strategy at Saxo Bank.

“The significant rally of the dollar during the past year, together with speculation about when the US Federal Reserve will begin to normalise its Fed Funds rate, has been creating a significant headwind for precious metals in general. This has triggered a reduced appetite from investors, who have been looking for better opportunities in stocks and bonds.”

Higher interest rates drive investors to favour assets that pay interest, such as bonds, curbing the metal’s appeal as a store of value, since it generally offers returns only through price gains.

According to Pradeep Unni, the head of trading for commodities and currencies at Richcomm Global Services in Dubai, silver often tracks the dollar and gold for direction.

“Now to put things in perspective, it’s very much ideal to stay invested or attempt fresh investments in the silver market, as the market has sufficient upside potential,” he said.

“But riding the silver bull isn’t easy and corrections would have to be encountered on the path. In the medium term, there are fair chances for the metal to sag below $15 an ounce, but if it manages to sustain above $15 in the process, a buying spree may get triggered again.

“Our view is that silver will most likely inch above $20 an ounce in the very near term and will not surprise us if it closes beyond $24 in the year-end.”

Most primary producers refrained from hedging last year, while several companies locked in the price of silver that was mined with base metals, Mr Leyland said.

“For the base metal producers, this is a very small part of their revenue stream, and it helps to lock in the price,” he said. “It gives them a bit more certainty.”

Also last year, physical demand declined 4.1 per cent to 1.07 billion ounces from a year earlier as purchases of coins and bars fell from a record, according to the Washington-based Silver Institute’s World Silver Survey 2015 report, which was released last week.

Industrial fabrication, which includes silver used in electronics, photography and brazing alloys and solders, dropped 0.5 per cent to 594.9 million ounces last year.

Photovoltaic demand was a bright spot within the industrial demand category, which grew 7 per cent last year, according to the report. Demand stood at 10 per cent for the category, up from about 1 per cent a decade ago.

“Demand for silver in the photovoltaic industry has been driven by a tremendous increase in the uptake of renewable energy over the last decade. The push towards solar energy has been boosted largely by the introduction of government subsidies and feed-in-tariffs aimed at incentivising the growth and subsequent flourish of the industry. Such developments have lent to the proliferation of solar module production, a development largely in favour of silver consumption,” the report said.

Mr Unni said that another factor to note was gold-silver trading ratio, which is expressed as the number of ounces of silver to buy or sell one ounce of gold.

“The current gold-silver ratio is about 72, and every time the ratio has reached this zone we have noted significant selling of gold and accumulation of silver.”

Saxo Bank’s Mr Hansen said that silver has been the better performer relative to gold during the past year, as it has outperformed its counterpart by about 8 per cent.

“Near-term, the outlook for silver remains tied to the performance of gold. Only a break below 70, the bottom of the current range of the ratio between the two metals, could trigger a period of silver outperformance,” Mr Hansen said.

Meanwhile, gold yesterday held on to the biggest climb in a week as a weaker dollar and declining equity markets boosted its appeal as an alternative asset.

Bullion for immediate delivery traded at $1,194.04 an ounce yesterday from $1,193.94 on Tuesday, when prices rose 0.8 per cent for the biggest gain since May 4.

“Gold’s strength was supported by weaker equities in Europe and the US and a steadily stronger euro,” Australia & New Zealand Banking Group said in a note.

* with agencies

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