Metals Focus: Silver Prices To Get Lift Late In 2018, Faces Headwinds For Now
(Kitco News) - Silver prices may remain impeded by a “challengingenvironment” in the foreseeable future before rising later in the year,eventually poking above $20 an ounce, said Metals Focus Thursday.
Analysts released a forecast for the precious metal inconjunction with the London-based consultancy’s Silver Focus 2018 report. Theysay silver will remain an oversupplied market this year, but look forinvestment demand to pick up the slack.
Silver has been range-bound so far in 2018 between aroughly $16-$18 range, with gold also range-bound amid a lack of institutionalinterest, Metals Focus said. Precious metals have been held back by a favorablemacroeconomic backdrop, rising bond yields, subdued inflation and movement inequities.
“For 2018, we expect the challenging environment forsilver to persist over the near term,” Metals Focus said.
Still, analysts said they look for conditions acrossglobal financial markets to become more supportive for precious metals later inthe year.
“For example, political developments in Italy, periodicspikes in geopolitical tensions and the potential for a destabilizing trade warshould all boost sentiment towards precious metals,” Metals Focus said. “As aresult, silver is likely to spend the last few months of 2018 trending upwards.This, in turn, will see the full year average price rise by 2% y/y[year-on-year] to $17.40.
“As such, we believe a venture above $20, even if onlyshort-lived, is likely during the final quarter of this year.”
Analysts said their outlook is based on the idea that theU.S. dollar will weaken later in the year in part due to expectations fortighter monetary policy in Europe. Further, the U.S. Treasury yield curve couldflatten further, which would be bearish for the dollar.
“Another positive factor for precious metals is theoutlook for equities, particularly U.S.-based stocks as economic growth in theU.S. starts to lose momentum,” Metals Focus said. “As a result, followingnotable gains over the past few years, volatility is likely to re-emerge, andsharper moves could become more frequent. This could lead to somediversification in favor of precious metals, which should also include silver.”
Metals Focus also looks for real short-term interestrates to remain negative in the major economies for the rest of this year andbeyond, thereby reducing the so-called “opportunity costs” - or lost interestincome -- of holding zero-yielding assets such as precious metals.
Trade protectionism will raise concerns about global andU.S. economic growth, and this could lead to other geopolitical issues, MetalsFocus said. The consultancy called Italian politics a “wild card,” with worriesthat a new populist government will favor policies that could fuel a new debtcrisis in Europe. “Ultimately, this could boost the appeal of safe-havenassets,” Metals Focus said.
In assessing supply-demand fundamentals, Metals Focussaid physical investment in silver should improve by 6% this year, althoughthis is a gain from a historically low total in 2017. Other critical areas ofsilver demand -- industrial, jewelry and silverware -- will also grow, but onlyby 1%. Meanwhile, these gains will be partly offset a 1% rise in mine production.
“As a result, 2018 is expected to see another year ofoversupply, albeit less so than during 2016-17,” Metals Focus said.
This means that the market will rely on professionalinvestors absorbing a “considerable level” of excess supply for 2018 that is forecastat 37.2 million ounces, or 1,158 tonnes, Metals Focus said.
“Given the aforementioned macroeconomic and geopoliticalbackdrop, there is plenty of scope for these fresh investment inflows intosilver to emerge later this year, especially among institutional players,” theconsultancy said.
By Allen SykoraFor Kitco News
Follow @AllenSykora
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