Silver prices to average $13 long-term but could challenge $20/oz in early 2010 - RBC

RBC Capital Markets suggests that supply factors remain a concern in the longer term just as dollar weakness will be a boost in 2009/10.

GRONINGEN - 

A short-term pull back in the price of silver in the next 4 to 8 weeks could well be on the cards after the sharp run-up seen since mid-July but, renewed demand late in the year and in the early parts of 2010, could see the metal challenging the $20/oz level.

This is the view of RBC Capital Markets, which says in its "review of all things silver" it retains its positive view on silver in the short to medium term because of: "Continued fundamental outlook for a weaker U.S. dollar, which we believe in turn will likely result in stronger precious metal prices (both gold and silver)."

Also, the group says, that demand increases for industrial and investment segments are forecast to more than offset continuing decline in photographic demand."

But, while there are also likely to be significant production cut-backs in some base-metals, which is expected to dampen by-product silver output over 2009, the group does caution that in the medium to longer term, it is concerned that "increasing primary silver mine supply" could "eventually cap the upside for silver prices."

On the subject of supply and demand, RBCCM, is fairly bullish given its belief that its view of the silver market and its drivers has been made slightly clearer by "the significant drawdown of above-ground stockpiles over the past 10-15 years to meet the annual excess of global demand over new mine supply"

681 million ounces of silver was produced in 2008, the fifth consecutive year of record-setting results according to RBCCM, and while much of this came as a by product of other metals, a number of new primary silver operations are expected to come on stream in the near future.

And, while the increase is likely to be partially offset by mine closures, the group says, "these new primary and by-product operations could add 75-85MM oz of annual silver production (+10% of global mine supply) by the end of the decade.

Another concern highlighted in the report is Chinese silver production which is currently estimated at about 10% of global mine supply.

While the group says it is a difficult area to monitor as a result of the sheer number of small mines and smelters, it believes China is "a larger player than its domestic production would suggest, as the country is a large importer of metal concentrates (copper, lead-zinc), which are then processed at Chinese smelters and refineries and by-product silver is recovered (for either domestic use, export, or stockpiling)."

Indeed the group believes that China's above-ground stockpile is likely to have increased over the last few years.

It adds that, while "total above-ground stocks may have declined to a few hundred million ounces of silver, our global supply/demand forecasts suggest these levels may be sufficient to meet the demand gap for a number of years. Alternatively, we believe that new demand drivers are required in order to eliminate the remaining overhang from above-ground silver stockpiles."

One of the new key demand drivers is investment directly into the silver market and RBCCM maintains that for 2008, total silver ETF holdings grew by about 100MMoz.

"This year, our outlook is for continued positive demand for the silver ETFs, perhaps slightly higher levels than were seen in 2008. YTD, the iShares Silver Trust has already added 62MMoz, bringing total silver holdings to 280.6MMoz. The other two ETFs have added another 28MMoz, to bring 2009YTD demand to over 90MMoz. As a result, we have increased our forecast for total new ETF demand from 88 to 110MMoz for 2009."

So where does this leave silver prices?

According to the RBCCM report, silver is expected to produce an average price of around $13.25 over the year, before rising to $13.50 in 2010 and settling on a long-term average of around $13 from 2011 onwards.

And, in terms of its relationship to gold, the group says, "The ratio of the gold price to the silver price saw a dramatic move in favor of gold in Q4/08, reaching a peak of almost 85:1. Historical 1-, 5- and 10-year averages were significantly lower (closer to 60:1), suggesting to us back in January the potential for a reversion to the mean opportunity, which we believe could favor silver. This mean reversal has transpired, with the gold/silver ratio retracted to 59:1, and therefore we think this opportunity has played out.

"Given our view of weaker fundamentals for silver (compared to gold), we forecast the gold/silver ratio as more likely to settle out around 70:1, rather than 50:1 (our long-term $13/oz forecast assumes a 73:1 gold/silver ratio).

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responses to this article

silver And everyone lived happily ever after? by marge lethar on September 25 2009, 07:11 Find this comment inappropriate? Report it

silver prices Silver prices could challenge $20, but average $13.50 for the year! I was never good at math, but doesn't that mean that silver will have to spend a lot of time well below $13.50 to get down to that average price for the year? Make that . .more well, well below. . .less by SilverHog on September 26 2009, 08:23 Find this comment inappropriate? Report it

SIlver predictions This guy is obviously a moron! LMAO...SOme people just don't get it! Try 50 bucks plus in the next 3-5 years! WOW...What a twat! MAybe he thinks the two BIG banks that are shorting the silver price will succeed into the future. by Mr.CandyAss on September 28 2009, 12:28 Find this comment inappropriate? Report it

silver RBC is treating silver for the commodity it is. Two large silver mines opening expected to bring in 10% more silver. Considering silver supply just about covers demand, this will do a lot to the price of silver. Did you think more silver was never . .more going to be found? Plus China has been stockpiling silver and is now dumping it on the market. Just because you don't like the conclusion doesn't make it wrong, it just makes you a disrespectful, arrogant and a potty mouth. . .less by grover on October 04 2009, 13:02 Find this comment inappropriate? Report it

Chinese are purchasing silver The Chinese are not dumping silver. The government has been advising its people to purchase gold AND silver. I doubt the Chinese would be pumping silver to its people and dumping it at the same time. I think you need to check your . .more facts. http://english.cctv.com/program/bizchina/20090917/101746.shtml cctv.com is a Chinese government run site. . .less by Joe B on October 08 2009, 13:09 Find this comment inappropriate? Report it

RBC is owned by royal bank of Canada and just got busted by the SEC SECURITIES AND EXCHANGE COMMISSION, , Plaintiff, v. Civil Action No. RBC CAPITAL MARKETS CORPORATION, Defendant. COMPLAINT Plaintiff Securities and Exchange Commission ("Commission") alleges the following against defendant RBC . .more Capital Markets Corporation ("RBC" or "Defendant"): . NATURE OF THE ACTION RBC is a Minnesota corporation and a wholly-owned subsidiary of Royal Bank ofCanada. RBC is registered with the Commission as a broker-dealer and as an investment adviser, and is a member ofthe Financial Industry Regulatory Authority (FINRA). RBC maintains its principal executive offices, as well as its trading desk responsible for ARS, in New York, New York. Among other services, RBC provides underwriting and remarketing agent services for issuers ofARS, and, during the relevant period, marketed ARS to many ofits customers throughout the United States. Google them and you will know why they say silver will drop to 13 and change,they are prob one of the other banks that are short silvr! They are working for the FED:) . .less by Dan on October 14 2009, 07:39 Find this comment inappropriate? Report it

idiotic forecast for silver Whoever is writing this drivel must 1) know little to nothing of the fundamentals of silver as one of the best investments and most undervalued commodities; and/or, 2) would likely be trying to spit against the wind in trying to convince others to . .more support shorting silver so they (RBC) can salvage their short position. Chinese are restricting export of virtually all metals (base, precious and rare earth), building up their commodity base and buying up assets in order to divest themselves of as many worthless FRN's as possible. It is doubtful we will see silver south of $15 again for a long time. If the manipulation of silver would cease (that is, if the CFTC would do their job) we would see silver over $30 in a heartbeat. That is what scares the writer of the above to death, because he is likely part of the problem. . .less by Headude on November 09 2009, 23:00 Find this comment inappropriate? Report it

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