Speculators Looking for Havens from Slowing Growth are Piling Into Silver

January 23, 2015

San Francisco (Jan 23)  Silver headed for a bull market in its best start to a year in more than three decades as the European Central Bank expanded economic stimulus measures, boosting demand for the metal as a store of value.

Holdings in exchange-traded products backed by the metal have posted three straight weekly gains, while U.S. government data show money managers raised their net-bullish wagers to the highest since August. An ounce of gold bought as much as 71.5 ounces of silver on Thursday, compared with an average of 58 in the past decade, signaling the white metal is inexpensive relative to gold.

The euro weakened to an 11-year low against the dollar as the ECB expanded its bond-buying program, boosting demand for precious metals as alternatives to currencies that are being revalued. A collapse in oil prices has boosted the appeal of gold amid the threat of deflation, and the price on Wednesday topped $1,300 an ounce for the first time since August.

“Silver is enjoying safe-have bids along with gold, and there is also a lot of physical buying” Frank McGhee, the head dealer at Alliance Financial LLC in Chicago, said in a telephone interview. “There is a flight to safety because of all the concerns about the economy.”

January Rally

Silver for immediate delivery climbed 0.,9 percent to $18.2915 an ounce at 11 a.m. New York time, according to Bloomberg generic pricing. A settlement at $18.4064 would leave the metal up 20 percent from the closing low of $15.3387 in November, meeting the common definition of a bull market. This month, the price has jumped 17 percent, the biggest gain to start a year since 1983.

Gold for immediate delivery rose 0.5 percent to $1,199.63. On Wednesday, the price reached $1,305.25, the highest since Aug. 15.

“Silver will benefit from all the stimulus measures and rate cuts being announced aggressively by the central banks,” Caroline Bain, a commodity economist at Capital Economics Ltd. in London, said in a telephone interview. “The stimulus measures will at some point boost usage of the metal.” Bain said she expects the price to rise to $20 by the end of the year.

Consumption is forecast to grow to almost 680 million ounces by 2018, up 142 million ounces from 2013, as demand in industries ranging from appliances to solar energy will rise, CRU Consulting said in a report on Dec. 10.

Physical Market

A tighter physical market will provide some support to prices this year, Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd., said at a conference in London on Jan. 21.

The consulting firm expects global silver supply from mine production and scrapping to fall 2 percent in 2015, and physical demand for uses including industry, photography and jewelry to grow 2 percent. The physical silver-market surplus will shrink by 40 million ounces to 211 million ounces in 2015, according to Precious Metals Insights.

“Silver is rising along with gold as a hedge against uncertainties,” George Gero, a New York-based precious-metal strategist at RBC Capital Markets LLC, said in a telephone interview. “Also, some funds are betting on future growth with so much money being pumped into the system.”

Source: Bloomberg

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