The Conversation (2)
Silver had a rough 2013, and now most analysts are predicting that the white metal will average about $21 per ounce in 2014.
This time last year, analysts were hopefully predicting that silver would trade between $30 and $50 per ounce in 2013, counting on “massive liquidity expansion and the resulting currency devaluation to drive safe-haven investment in precious metals.”
Unfortunately, as silver market participants well know, that did not come to pass. Here, Silver Investing News (SIN) takes a look at what moved silver prices in 2013, also reviewing a few of the key events that took place in the market. SIN also looks at where analysts see prices for the white metal going in 2014.
April price drop
Silver, according to PricewaterhouseCoopers, earned the distinction of being 2013′s worst-performing metal, an honor that is especially dubious given that in 2012 the white metal recorded an average price of $31.15, its second-highest on record.
The reason for silver’s poor performance is well known — midway through April, the precious metal plunged from over $27 to about $23 following violent action in the gold market, which many believe was caused by investors being “unnerved by the potential sale of Cypriot gold reserves,” SIN reported at the time.
Since then, silver has slowly, but surely, continued to slip downward, pressured in large part by concern that the US Federal Reserve will begin tapering its $85-billion-per-month stimulus program, an anxiety that became a reality just this week. Yesterday, it closed the day at $19.25.
Other key events
Against that backdrop, a number of other issues reared their heads in 2013. While they did not have a sustained impact on silver prices, they nevertheless help paint a picture of what happened this year.
- Manipulation: Always a contentious topic in the silver market, manipulation popped up a number of times this year. Of particular note was the Commodities Futures Trading Commission’s closure of a “high-profile investigation into alleged manipulation of the silver market” five years after the case was opened. No firms or individuals were charged and the regulator concluded that there is no “viable basis” for a case.
- Mexico: Another issue that came up multiple times in 2013 was Mexico’s approval of a basket of tax reforms, including one that will see miners operating in the country be taxed 7.5 percent — or 8 percent for companies extracting precious metals — on earnings before interest, taxes, depreciation and amortization. Though there has been resistance from the mining community, when SIN last reported on the topic, some optimism had begun to surface.
- India: On the other side of the world, Indian silver demand has been quietly increasing throughout the year, leaving market participants wondering if 2013 will see the country import more than the record 5,048 metric tons of silver it brought in back in 2008. Also up for question is whether the white metal is set to overthrow gold in popularity in the country, which has long been known for being the world’s biggest gold consumer.
2014 price outlook
For obvious reasons, analysts’ silver price forecasts for 2014 are markedly lower than they were for 2013. However, what this year’s price predictions do have going for them is uniformity — while 2013 price predictions for the most part covered a $20 range, for 2014, most analysts see silver trading between $19 and $26 or so. The majority, in fact, place the white metal at a conservative $21, as is evidenced by the following list:
- Barclays (NYSE:BCS) — $19.50 per ounce
- Morgan Stanley (NYSE:MS) — $21.01 per ounce
- UBS (NYSE:UBS) — $20.50 per ounce
- Bank of America Merrill Lynch — $26.38 per ounce
- Thomson Reuters GFMS — $20.42
- Bank of Montreal (TSX:BMO,NYSE:BMO) — $21
- Commerzbank (ETR:CBK) — $21.50 per ounce
The predictions from these firms largely seem to stem from their take on what silver’s duality — the fact that it takes its cues from both gold market and industrial developments — will mean for prices moving forward.
For instance, UBS said in a recent note that as 2014 dawns, investors will likely be tempted to “move further out of safe havens” like silver and gold and “into other assets” because “[g]old has become old news, and investors are likely to be eagerly searching for new places to put their cash to work.” Given Wednesday’s news that the US Federal Reserve plans to reduce its $85-billion-a-month bond-buying program by $10 billion — a move that has thus far brought gold down about $50 — and likely further reduce the monthly total at future meetings, UBS’ prediction appears to be on point.
On the flip side, many of the firms mentioned above see silver prices being helped out by industrial demand, which is expected to increase moving forward. Bank of America Merrill Lynch, for one, was recently quoted by Wealth Daily as saying that “an improving global outlook in economic activity” is likely to “buoy silver, which has numerous industrial uses.”
Similarly, CPM Group noted in October that it sees silver prices consolidating for another three years before there is a pick up in investor interest and industrial demand. At that point, a “secular bull trend” may resume, with prices reaching “nominal highs.”
However, it’s important to note that analysts also cited industrial demand as a possible positive silver price catalyst last year. And, as today’s prices indicate, the white metal does not seem to have received much help from that arena despite the fact that, according to the Silver Institute, industrial demand is indeed on the rise.
As 2014 begins, then, it seems that the bulls’ best bet will be to hope that the improving economy boosts industrial demand for silver enough to cancel out the losses it may see as investors lose interest in it as a safe-haven asset.
They might also do well to keep in mind what David Morgan, publisher of The Morgan Report, told SIN back in June. “There’s only so much silver available under $20 an ounce. There’s even less available under $19 and even less available under $18. So the lower it goes, the shorter timeframe it’s going to stay there. Even if people panic when it goes short term into the lower prices, the reality is that the entire silver market can’t be bought at $19.70 per ounce. There are only so many offers of physical silver at that low price, and it’s a small, small amount. Once that’s taken off the market, then it starts to pressure the market back up.”
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading:
Silver Outlook 2013: Industrial Demand the Wild Card in an Investment-driven Market
Silver Hit Hard in Gold Market Crash
Mexican Mining Tax Not a “Deathblow” to Exploration, Production