Safe-haven Demand Could Push Silver Prices Higher in 2018

While 2018 silver prices will largely be determined by investment demand trends, the white metal could be pushed upward from the effects of political and economic volatility on the market, says New York-based CPM Group.

2017 saw an investor demand slump not seen since 2007, to which Yvonne Yue Li, commodity analyst at CPM Group, stated, “no clear upward direction in silver prices saw investors take a back seat in silver investment.”

Despite this, CPM Group believes that interest in silver’s safe-haven nature during times of chaos in the markets could aid in a price uptick for the precious metal.

“The enormous range of economic, financial and political issues facing the world and individual investors seems more likely to lead to a rekindling of silver demand from investors,” said CPM Group in its Silver Yearbook 2018.

The firm adds that even with geopolitical issues stimulating safe haven interest for investors, they may not buy aggressively.

“On various occasions over the past few years, silver prices have risen only to fall back. This sort of price pattern often turns investors away, putting them in a cautionary, wait and see frame of mind,” CPM Group said.

Silver investment demand dropped 52 percent in 2017 to 50.2 million ounces on a net basis. In 2018, CPM Group expects 43.9 million ounces in investment, which would be the lowest since 2006.

The average spot silver price also declined in 2017, falling 0.5 percent and down almost 2.5 percent so far this year. Pulling these prices down are investors who have begun pursuing higher-yielding opportunities, including global equities.

Retail demand was also down in 2017, but fabrication demand was up thanks to the huge boost of silver use in solar panels.

CPM Group expects continued growth in this sector, forecasting silver demand of 107.3 million ounces at an increased rate of 1.2 percent. However, analysts don’t believe that this uptick will be enough to make a significant impact on prices.

Also expected to increase in 2018 is jewelry and silverware demand, which CPM Group predicts will make gains of 8.9 percent landing at approximately 306.1 million ounces.

On the supply side, global silver mine production is forecast to rise to 776.6 million ounces in 2018, gaining 0.2 percent from 2017.

“While there is a lot of silver available in the world compared to gold, and unlike gold silver tends to be liquidated from inventories more readily, there has been a decline in mine supply since 2016 which is expected to continue over the next decade,” CPM Group said.

Declining mine supply and rising fabrication demand are expected to tighten the market, which has the potential to lead to a price increase, analysts added.

As of 10:08 a.m. EST on Wednesday (April 25), silver was down 0.87 percent, trading at US$16.53 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.  

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