Silver prices are expected to consolidate in 2015 amid a burgeoning US economy and strengthening dollar, CPM Group in its annual Silver Yearbook released on Wednesday.
Silver struggled during 2014, failing to break over $22 per ounce during the first seven months and sliding lower during the second half of the year. The grey metal ended the year at $15.60, down 19 percent.
“These price levels were the lowest since 2010. Silver prices declined primarily due to shorter term investors who moved their funds out of not only silver but much of the commodities complex,” CPM noted.
Silver futures have recovered modestly in 2015, creeping up to $16.57. For the full year 2015, CPM expect the metal to average $16.93 in a range from $15.66 to $18.51.
Moving forward, one of the most anticipated and debated question in the global financial markets is when and by how much will the US Federal Reserve raise interest rates. The group does not expect the first hike to happen until until September, at the earliest.
“The potential for an increase in interest rates is expected to keep the US dollar at elevated levels, which could weigh on silver prices,” CPM Group said.
Conversely, an increase in interest rates could also force investors to take a macro outlook to the metal and discover increasing government debt mixed with declining revenue, the group added.
Investors are forecast to purchase 107.3 million ounces of silver in 2015. In 2014, market participants purchased 131.6 million ounces – down 13.6 percent from the previous year and the weakest demand since 2008.
Short term investors moved their capital elsewhere seeking faster returns, while long term participants added further long positions amid falling prices, the CPM Silver Yearbook reports.
The group argues that silver bulls retrenched their position by buying silver coins. US Mint silver coin sales reached 44 million ounces during 2014, up 6.1 percent over 2014 levels, a new record high.
On the supply side, mines are expected to produce 790.5 million ounces in 2015, a 1.1 percent increase over 2014. However, the secondary market will contract by 4.7 percent to 205 million ounces.
Meanwhile, silver fabrication demand is projected to rise 3.2 percent to 892.7 million ounces in 2015 from the 2014 level of 865.3 million ounces.
Jewellery – the largest end-user of silver – is projected to reach 295.9 million ounces in 2015, up 6.4 percent from 2014. Electronics is the second largest market for silver and is forecast to reach 225.8 million ounces, up around 1 percent from 2014 levels.
Demand from the solar panel industry is forecast to reach 76.7 million ounces in 2015, while demand from the photography sector, which has been in a long declining trend, is expected to slip to 72.5 million ounces in 2015 from 77.4 million ounces in 2014.
“The reduction of silver on a per unit basis was one of the many factors that made [solar] technology more affordable over the years,” the group said. “This in turn resulted in an increase in demand for solar panels, which more than offset the per unit reduction of silver in the panels.”
Investors are forecast to purchase 102.9 million ounces of silver in 2015, the group said.
“These purchases should prevent prices from declining significantly during 2015, but this level of investment demand most likely will not be strong enough to drive silver prices sharply higher,” the report added.
Silver exchanged-traded funds rose to 625.5 million ounces at the end of February, up 1.5 million ounces from the end of 2014. However, this is still down 10.8 million ounces added on a net basis during the same period a year prior.
“The relatively subdued demand for silver ETFs reflected investor concerns over a strengthening dollar against a basket of currencies and endless market speculation about the timing of the first interest-rate hike by the Federal Reserve since the 2008-2009 global financial crisis,” CPM Group said.
(Editing by Tom Jennemann)
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