Silver To Trade Above $20 In Q4 – Metals Focus
Silver prices will surge in the second half of 2017, jumping above $20, led by the Federal Reserve’s slow tightening of monetary policy, weaker U.S. dollar, and economic and political risks, according to The Silver Focus 2017 report.
Analysts at Metals Focus, the firm behind the latest silver outlook, said they expect “the global macroeconomic environment to remain and indeed become more positive for precious-metals prices over the rest of the year and probably beyond. As a result, we forecast that the silver price will rally in the second half of 2017, with a breach above $20 looking likely in the fourth quarter.”
The key factor to watch in 2017 is the pace of Federal Reserve rate hikes.
“While rising [rates] will probably remain in place for the foreseeable future, the speed at which monetary authorities move towards ‘normal’ policy will continue to be slow and probably no faster than markets are currently pricing in,” the report said.
The 2017 forecast states that a “short-lived” sell-the-rumor/buy-the-fact rally is possible after an almost certain hike in June, but the overall negative-rate environment fosters ideal conditions for silver prices to rise this year.
U.S. economic indicators are also on the list to watch when it comes to projecting silver-price moves for the year, the report noted. And all the indicators are pointing to the economic progress “falling short of expectations.”
“Looking ahead, we are skeptical over the scope for reflationary fiscal and trade policies to be implemented by the current administration, causing further disappointment to emerge. We also feel that U.S. equities look expensive as both the S&P 500 and Dow Jones Industrial Average indices are now trading near all-time highs … A correction therefore looks likely and this would be positive for precious metals,” the annual report said.
With this in mind, the U.S. dollar upside also looks to be limited, which is beneficial for silver. On top of that, economic conditions in the eurozone are continuing to improve, which means the greenback could face additional pressure in the second quarter.
Geopolitical risks are not subsiding either this year, which is a good thing for the precious metal, Silver Focus added.
“There remain an abundance of political tail risks on the horizon. These include the ongoing internal challenges that the current U.S. administration faces, tensions in the Middle East as well as the Korean peninsula and the outcome of Brexit negotiations. At the very least, while these and various economic issues (such as debt growth in China) continue to brew in the background, they should continue to favor incremental safe-haven interest in precious metals.”
The report also projects healthy professional-investor interest in silver for the rest of the year.
“[All of] this should provide essential fuel for the silver price to rally in the second half of the year, driving the full-year average to $18.30, a level some 7% higher than last year’s figure.”
When it comes to market’s own fundamentals, however, Silver Focus does not see any significant support for silver, mainly due to declining demand in the U.S. and India, the two largest markets for silver retail investment in the world.
“Our supply-demand projections for 2017 see the already sizeable surplus of 67.2Moz (2,090t) that we saw last year grow further to 90.4Moz (2,811t). This is largely due to another decline in bar and coin demand, owing to a combination of market saturation and price conditions not favoring retail investment demand in the two dominant markets of the U.S. and India,” the report pointed out.
Silver mine production is forecasted to drop by 2% in 2017, while industrial silver offtake is estimated to grow 2%.
The biggest demand for silver comes from the electrical and electronics sector and it is expected to continue to advance, mainly driven by increased production of vehicles and consumer electronics goods.
On the downside, physical investment demand for silver will continue to be a problem, with this year’s numbers projected to plummet 13% to the lowest total in a decade.
“The U.S. will account for over 60% of gross losses, although the country will still remain the biggest market,” the report stated. “In India, further weakness is expected in 2017, as the government’s restrictions on cash transactions, as well as its ongoing effort to curb unaccounted money, will continue to affect demand.”
Some of the report’s updated data from last year also revealed a few interesting facts about silver-mine supply, including Mexico remaining the largest silver producer with 184.8 million ounces (5,747 tonnes).
For Kitco News