A week in gold: ECB dominates gold price: Silver on the up
London ()cy 24) Gold had a relatively quiet week with ECB president Mario Draghi’s plans for the eurozone providing most of the interest.
Silver fared better and was some 7% higher for the week.
Simona Gambarini at Capital Economics reckons the price will rise moderately until the end of the year, but sees silver rising next year and beyond.
“Oversupply has been one of the key factors depressing silver prices in recent years, but things might be about to change,” she said.
Recently, mining giants Glencore and BHP Billiton, the fourth and fifth largest producers of silver, have announced they are to cut their copper and zinc production, and the analyst sees silver as the next to be slashed.
The two metals, Gambarini says, are usually mined with silver, and “Glencore’s recent crisis provides one of the clearest illustrations yet of the challenges faced by commodity producers at current low prices.”
Glencore intends to reduce output at its Collahuasi mine in Chile, and its George Fisher, Lady Loretta and McArthur River mines in Australia.
Meanwhile, BHP’s production from its Cannington mine, the world’s largest primary silver mine accounting for some 3% of overall production, will also slide.
“Overall, Glencore and BHP’s output cuts could reduce global production of silver by at least 6.3mln ounces per year.”
Although this is less than 1% of the global silver output, she says any reduction is a “significant change”.
With other miners set to follow suit, global silver output could fall by as much as 3% by the end of 2016.
Indeed, Fresnillo, the world’s second largest producer of silver, has announced it too will be forced to cut production if prices remain at current lows.
“This helps to underpin our forecast that the price of silver will reach US$16.5 per ounce by the end of the year and US$20 by the end of 2016”.
Also boosting the metal is an uptick in imports from China, which imported 338 tons of silver in September.
It took imports in the first nine months of the year to 2,395 tons, 21.6% more than in the same period last year.
Commerzbank said: “Chinese silver imports could thus serve once again to shore up the silver price”.
However, investors have been slow to get behind the metal so far.
Unlike gold, “its price still remains below the technically important 200-day moving average” Commerzbank said.
Crucially, futures are starting to move in the right direction, with net long positions of 51,710 contracts the highest they have been since January.
According to Rick Pendergraft of Wyatt Research, this is only the fifth week in the last year where the group has been long over 50,000 contracts.
Gambarini, at Capital Economics, believes silver may move above its 200-day average before the end of the year if the metal rises anywhere near her price target of US$16.50.