HSBC ‘More Optimistic’ On Silver Price Due To Expected Gold Strength, Improved Fundamentals
London (Dec 8) HSBC looks for silver prices to rise in 2016, citing a move on the back of the bank’s expected rise in gold as well as stronger supply/demand fundamentals.
The bank trimmed its previous silver forecast to an average of $15.90 an ounce for full-year 2016, although this is above early-December prices. The bank projected a full-year range of $13.25 to $16.75 an ounce. HSBC then looks for silver to average $18 an ounce in 2017.
“There are three reasons to be more optimistic,” HSBC said. “First, solid fundamentals, especially expectations for reduced supply, are likely to be supportive. Second, on the demand side, we believe that investor positions in exchange-traded funds will increase, and we also see a rise in industrial demand and retail buying of coins and bars. Third, we expect silver prices to benefit from any gains in gold, for which we have a bullish outlook, and for a weaker USD in 2016 to support both metals.”
The bank looks for mine supply to decline next year and also anticipates that low prices will discourage scrap recycling.
HSBC said it looks for a “mild rebound” in exchange-traded-fund holdings of the metal, commenting that the dip this year was less pronounced than for gold.
“The large institutional investors who are responsible for the bulk of the gold ETFs liquidation are mostly absent from silver,” HSBC said. “Most
investors have a buy-and-hold trading strategy we believe. This removes a potential impediment should ETF demand recover, possibly in line with higher gold, and a USD pullback.”
HSBC also anticipates a “mild recovery” in industrial demand. Jewelry-related buying is improving and price-sensitive coin and bar demand is robust, HSBC said. Analysts said their models suggest a market deficit of 68 million ounces next year.
Silver often follows gold, and HSBC previously forecast gold rising to an average price of $1,205 an ounce next year. Both came under pressure this year.
“We expect the story to shift in 2016, both on supply-and-demand fundamentals in the silver market and based on our expectations for a strong EUR-USD and gold,” HSBC said.