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GFMS Sees a Silver Rally in 2013

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11/16/2012 | 08:56pm CET

--GFMS: Silver May Exceed $50/oz later in 2013

--GFMS: Investment Demand Key to Silver Prices Next Year

--GFMS: Silver Surplus to Increase in 2012

NEW YORK--Silver prices are set to rally in 2013 and could exceed the all-time high of around $50 a troy ounce, as concerns about easy-money policies bolster investment demand for the precious metal, metals consultancy Thomson Reuters GFMS said in its Interim Silver Market Review.

Growing investor appetite for precious metals catapulted silver prices to record highs in 2011, and has helped silver sustain a bull run in 2012. Investment demand has been a crucial factor in mopping up the excess silver supply created by rising mine output and falling industrial demand, GFMS said.

Silver's appeal lies in its role as a quasicurrency. Investors have stocked up on hard assets and currency alternatives like silver amid fears that accommodative monetary policies employed by the world's central banks will erode the value of paper currencies.

However, this has made silver prices extremely vulnerable to shifts in investor sentiment as growing oversupply of the metal places increased significance on the role of investment demand in dictating prices, the consultancy said.

GFMS estimates that industrial demand for silver fell 6% in 2012, driven by weak economic growth in developed countries. Manufacturers continued to find ways to substitute cheaper raw materials in place of silver. Meanwhile, consumers have cut purchases of silverware and shifted away from costly precious metals in their jewelry purchases. The trend was partially offset by rising sales in emerging markets, particularly China, GFMS said.

Silver mine supply rose for the 10th consecutive year in 2012, and is expected to total 797.0 million ounces, up 4.3% from 763.8 million ounces in 2011.

"This gap between supply and demand will have to be filled by investors, highlighting the metal's vulnerability to a change in investor sentiment," GFMS said in a statement.

Silver prices are likely to remain volatile in light of these precarious market conditions, GFMS said. Investors in search of a bargain have proven their willingness to support the silver market around the level of $30 a troy ounce, the consultancy added.

Silver prices could rise to around $36 a troy ounce by year end on a brighter global economic outlook, with industrial demand for the metal rebounding as manufacturing activity recovers, GFMS said.

However, silver is unlikely to challenge its all-time high of around $50 until well into 2013, the consultancy said.

-Write to Tatyana Shumsky at tatyana.shumsky@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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