Silver Prices at $30 in 2011, says GFMS

By Melissa Pistilli—Exclusive to Silver Investing News

Silver bugs have grown use to the wide price swings inherent in a market noted for its volatility. A stronger dollar and the 5.9 percent rise in futures margins by the CME Friday put the breaks on last week’s impressive record-reaching rally. Silver prices continued to fall near the $25 an ounce range through the early part of this week before rebounding Wednesday.

Thursday, the price of silver is once again recovering it losses as the white metal heads toward the $27 level. Analysts site speculators buying the dip, improved industrial demand, a recovery in base metal prices, stronger equity markets and a weaker dollar for silver’s resurgence.

Fueling more positive commodities sentiment, the continuing debt saga in the euro zone took a brighter turn as Ireland’s central bank chief Patrick Honohan announced the nation would be the beneficiary of a sizable loan package from the EU and IMF.

Also in play, Gold Fields Minerals Services’ (GFMS) call for $30 an ounce silver in 2011, put forth in the firm’s Interim Silver Market Review presented at the annual New York Silver Dinner Wednesday evening. The report’s bullish outlook no doubt gave a boost to bargain-shopping sentiment Thursday.

Speaking at the Dinner, hosted by the Silver Institute, GFMS chairman Philip Klapwijk said, “There’s been a tremendous run-up in silver ETF holdings over the past several months. These have been very sticky investments so far.”

As Kitco’s Debbie Carlson reports, Commerzbank also noted the immense activity in silver ETFs. “Inflows in silver ETFs have evidently compensated for the withdrawal of speculative oriented financial investors. Nine hundred thirty-two tons of silver has flown into the world’s largest silver ETF, iShares Silver Trust, alone since the end of September,” said the bank.

Shares of iShares Silver Trust ETF (NYSE:SLV) were up $1.29 this afternoon, to trade at $26.35, a gain of nearly over 5 1/2 percent.

Short Term Forecast

December futures prices could manage further gains before week’s end, said Global Securities Futures Representative Jamie Greenough, in a note. “The bulls have control over prices [Thursday] and the question might be just how big will the recovery bounce be? Given the wild volatility seen in silver over the last three weeks and the very impressive recovery effort in silver yesterday in the face of mixed conditions, we would not be surprised to see December silver regain the $28.00 level before the close Friday.” A high close at that level might cue an end to the recent downside correction.

Long Term Forecast: $30 Silver in 2011

The coming year looks positive for silver prices, or so say Canadian-based investment bank Scotia Capital and London-based research consultancy GFMS.

In a recent report to clients, Scotia Capital upped the ante on its long-term silver price target for 2011 from $21 to $26 an ounce, with near term peaks at $30 an ounce. The bank also sees silver reaching as high as $35 an ounce in the next 24 months.

GFMS also sees the price of silver hitting $30 an ounce next year with an average price that could overtake the 1980 record of $20.98 an ounce.  “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,” said the report. “A retreat from over $30 would not necessarily imply an end to the multi-year rally in 2011.”

The firm attributes increased investment and rebounding industrial demand for the metal’s positive price outlook. Supply levels for 2010 are anticipated to rise 5 percent on a 3 percent increase to global mine production (primarily as a by-product from gold mines), after three years of flat production rates; however, GFMS expects surging investment demand to outpace supply gains.

“While this might appear bearish, we remain confident that investors will be of a mood to absorb the resultant, growing surplus, as key supports such as ultra-low interest rates, a weakening dollar and a buoyant gold market should remain with us, all of which should be easily enough to rally silver prices yet higher,” said the report

The industrial uses for silver are growing, especially in the photovoltaic and ethylene oxide catalyst sectors, and this is fueling overall demand as well. For 2010, the consultancy firm expects industrial demand to rise by 18 percent (approx. 65 million ounces) and 4 percent in 2011.

Investment demand may reach a record high of over 210 million ounces in 2010 with a net value of $4 billion, according to GFMS, a trend which is likely to continue into the new year.