Silver Expected To Follow Gold Prices And To Rally Faster: Industrial Use Of Silver To Be The Price Foundation As World Economies Pickup
February 8, 2010 - The Wall Street Transcript has just published Gold & Precious Metals, Base Metals and Non Metals Mining Report offering a timely review of the Precious Metals sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Neil Meader, Research Director at GFMS Limited, originally joined GFMS in 2000 as a metals Analyst. Having previously covered the Arabian Gulf countries, he is now responsible for most of Europe and for research on trends in adornment jewelry, as well as overseeing the timely production of all research material. Prior to GFMS, Mr. Meader worked as an Analyst in the energy industry and in soft commodity trading. He holds a degree in economic history from Exeter University.
TWST: What is the outlook for the first half of 2010?
Mr. Meader: I can't - expectations are that we should see an average price at around $1,200. So implicitly the first half in the lower $1,130s. Now we would expect the price to strengthen over the course of the next few months and probably get above the $1,200 mark by the time we move into the summer. Now it's going to be a far from smooth transition, and we think that we could see some short-term weakness, certainly visiting the below $1,100 territory in the near term. A lot of people still remain concerned that the scale of the fund long on COMEX represents an overhang and should anything - and if there's a shorter-term speculative-type fright at some macroeconomic news that emerges - you could see a snowballing, rapid selloff in that area. And you could get quite enough to down draft from that, but we think the maybe interim outlook is that much better.
We're certainly not expecting a price collapse. If you look at those aspects of the fundamentals, we're in a much better position than we were at a year back. The worst, I think you can safely argue, is over on an economic front. So jewelry demand should hold up much better, and there's probably a fair bit of pent-up buying. When the market was much stronger, up over $1,200, a lot of people would have postponed purchases on that front. And if you get a dip back below $1,100 we would expect lot of buyers to come back into the market quite quickly. And we'd also expect not much threat from old scrap coming back into the market. It does seem as though the price spike at the beginning of last year cleared out a lot of the loosely held inventory there. And so the volumes we're seeing coming back, even though we've got some fairly robust prices - not that great. So there is nothing really on the supply side now to threaten the market, especially when you take into account that selling, net selling by the central banks, should stay comparatively limited.
TWST: Looking at the underlying supply here, mine production hasn't been climbing at any big rate. What's the outlook there?
Mr. Meader: We are expecting a modest increase this year. There's been a handful of new projects that has either started up or coming up to full capacity. So we are going to get a short-term lift in mine production - I mean, not a great one, maybe sort of 3% or 4%, something like that. But I think in the medium to longer term, we do see a gently sloping downtrend at some of the more mature areas wind down. Now the main reason that it's not responding, you could argue, is that, well, a mine takes a long while to sort of bring on stream. And we didn't have the investment in exploration and development, say six, seven, eight years back, that would have been required if we were looking to see mine supply sort of keeping tandem with the price. And another factor to bear in mind is that skilled mine engineers are a finite resource, and if you've got booms in other commodity areas, they may well get attracted to those sectors. And skilled labor and shortages have been a feature of the gold mining industry for some while.
TWST: Does this positive outlook you have for gold extend to other precious metals as well?
Mr. Meader: In essence, yes, the silver will track pretty much what is happening in the gold market, and plus tend to rally faster when the prices are moving up and correct faster when the markets are going down. But the average could broadly move in line with the gold market. And the thing to remember for silver is that it's much more of an industrial metal than gold; half the market now is industrial and that is largely price insensitive. So if you have an improving world economy and that demand comes back, you've got a very good bedrock for the price, which in essence gold doesn't have because jewelry is much more price sensitive, and that's the bedrock of its demand.
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