Silver analysis and forecast report Q2 2015

Otmane El Rhazi from The Bullion Desk.

Overview of the Silver Market in Q2 2015

Each Quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the Precious and Base Metals. Below is the Silver report, to read the full report covering all the metals in pdf form click here.

Subscribers to FastMarkets Professional have access to the report before it is published here.

Silver – Overhead pressure persists

Summary

Silver enjoyed a stronger first quarter after the near-20-percent price drop in 2014. Yet the strength of the US dollar and the prospect of higher US interest rates later this year will continue to negate any positive demand expectations because jewellery and investment demand are supported by industrial demand related to stronger GDP growth.  We feel rallies will struggle amid elevated fund long exposure and the likelihood of further producer-related selling.

Overall trend – Silver enjoyed a stronger first quarter of 2015 after it fell almost 20 percent in 2014. Jewellery and investment-related demand will continue to provide underlying strength while India maintains its import duty on gold at 10 percent while investors look to hedge against the potential longer-term inflationary pressures from quantitative easing. Although the popularity of smartphones and the expansion of solar power generation will help support industry-related silver demand, miniaturisation will remain a drag. Still, silver continues to face mounting pressure as rallies encounter strong selling. Again, we feel this relates to producer hedging after global mine production increased 3.2 percent last year, according to WMBS figures, and is expected to expand further in 2015 thanks to projects in progress in Latin America. Overall, we expect silver to follow gold’s lead – we are looking for prices to trade in a $16-18.50 range in the second quarter.

In contrast to gold, silver ETF exposure weakened across the quarter amid signs of stale liquidation. In historical terms, though, silver exposure remains strong, with holdings just shy of their all-time record reflecting demand among smaller investors in the market.

As was the trend in much of 2014, fluctuations in speculative net length continue to be driven by short exposure.  But with open longs among Comex funds around 10 percent above the 2014 average, stale liquidation could lend addition price pressure.

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