Standard Bank Remains Bearish on Silver for 2013

In its latest quarterly report, Standard Bank states that it remains bearish on silver, noting that it believes the white metal will still trade below $20 per ounce for “short bouts” this year. The firm also maintains that silver’s “underlying demand/supply fundamentals remain weak and that inventory is abundant.”

As quoted in the market news:

The situation with China implies that one of two scenarios should play out before silver could rise substantially higher on a sustainable basis (1) internal demand (fabrication and investment demand) must grow faster to decrease the stockpiles; or (2) China must become a net exporter of silver again.

On the former, although China’s manufacturing activity has picked up, we do not believe it is strong enough to make a material difference yet. As far as the latter is concerned: even if China becomes a net exporter of silver, it would only imply that the metal has shifted location and not been consumed — the result of which would be price-neutral at best.

Therefore, we believe that the former is the only scenario that could see silver stockpiles decrease and build a substantial bullish case for the metal. While our estimate of inventory in China has increased at a slower pace in the past year, it is still rising. This, we believe, will cap upside. As a result, we see silver struggling throughout most of this year. Furthermore, silver has a beta of 1.4 with gold, implying that, if gold moved lower, silver would struggle even more.

Click here to read the full Standard Bank report.