Salient to Investors:
Trust in precious metals as a store of wealth is diminishing amid concern that growth is weakening.
Bloomberg survey in December 2012 expected silver to gain 33 percent in 2013 either because , or accelerating growth would spur more industrial buying; but silver is on track for its worst performance since 1984. The median prediction is for a rally to $23.50 by the end of 2013.
John Stephenson at First Asset Investment Mgmt said silver has been caught in the crossfire between being a precious and industrial metal – investors were selling gold and enough economic growth needed to happen to be valued as an industrial metal. 50 percent of silver is used in industry, compared with 10 percent for gold.
The US Mint predicts that gold and silver coin sales may reach a record in 2013, while the Austrian Mint sold 2 million ounces of silver in April versus 8.8 million for all of 2012. Degussa Goldhandel said silver sales last month were double the Q1 average.
Hedge funds et al have turned bullish and are holding a net-long position of 1,230 futures and options versus the 5-year average of 21,400 contracts.
Barclays says silver consumption by industrial users will rise 1.7 percent in 2013 and 2.8 percent in 2014, while supply will expand 8.9 percent in 2013 to 5,512 tons – the cumulative surplus since 2009 will reach almost 10 months of mine output by the end of 2013.
The median economist expects the Fed to trim monthly QE purchases to $65 billion in October. The IMF predicts growth of 3.3 percent in 2013 and 4 percent in 2014 versus 3.2 percent in 2012.
Scott Gardner at Verdmont Capital said continued Fed talking down the market and trimming QE will hurt precious metals, and unless you see a sustained rise in gold you will not see any improvement in silver prices.
Credit Suisse said gold may drop to $1,100 in a year and Goldman Sachs sees gold at $1,345 in 12 months.
The 30-week correlation coefficient of silver to gold is 0.85 versus 0.68 in 2011.
Silver in ETPs rose 1.1 tons in 2013 – within 5 percent of the record in March – versus a rise of 1,621-tons in 2012, and, while gold holdings have dropped 19 percent this year.
Jeremy Baker at Harcourt Investment Consulting said investor sentiment will remain poor, as with gold, and the real risk will come from further ETP liquidation.
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