Silver Price Breaks $22 But Analysts See "Substantial" Risks

UBS bucks trend, SocGen says Indian silver imports "will fall" if gold rules eased...

 

SILVER PRICE gains of 6% last week and 12% so far in February have yet to convince precious metals analysts that the trend will prove more than a blip.

 

According to French bank Natixis, the silver price rally is likely to be short-lived. "We would expect US economic data to improve," they further add in their latest note, "as we move beyond the current bout of extreme weather which has dampened economic activity since December."

 

Looking ahead, Natixis' analysis says "This should help to raise US interest rates and strengthen the Dollar, both of which would be negative for gold and silver prices."

 

Turning to silver ETFs, which bucked the trend in gold investment trust funds and continued to grow by weight last year even as the silver price dropped 28%, "If these guys start selling like they did with gold," says Walter De Wet of Standard Bank, "we could see substantial downside pressure on silver."

 

Again pointing to forecasts of a rising US Dollar and higher US bond yields, "Over the past couple of years," de Wet concludes, "we have seen that the silver price does ultimately tend to follow the same path as gold so we do think that is a substantial risk."

 

French investment and London market-making bullion bank Societe Generale conversely points to India, where 2013 imports rose sharply. That's because strict gold import regulations "diverted some traditional gold demand to silver," says precious metals specialist Robin Bhar. Additionally, the sharply lower silver price last year encouraged opportunistic purchases by Indian households.

 

Now however "there have been signs in mid-February that the silver price recovery has caused demand to drop back," Bhar believes. Overall, silver investment "is set to dissipate," he says, "particularly if the Indian government loosens restrictions on gold imports."

 

SocGen now expects the silver price to average $19 in 2014, well below last year's $23.79 per ounce and almost a dollar below the London market's average analyst forecast.

 

Only Swiss investment and bullion bank UBS breaks consensus, raising its analysts 2014 average silver price forecast from $20.50 per ounce to $22.30.

 

"The improvement in gold sentiment should have a considerable positive spillover effect on silver," write strategist Edel Tully and analyst Joni Teves.

 

Moreover, "Silver should benefit from a global economic recovery more than gold."