Silver: Shooting star still shines – HSBC

James Steel, Chief Precious Metals Analyst at HSBC, suggests that after years of declines, silver prices made significant gains in H1, boosted by robust investment demand based on strength in gold, risk-off investor appetite, and geopolitical risks.

Key Quotes

“We believe silver prices may remain well-bid for the second half of the year (we see a price range of USD16.00-21.50/oz) and into 2017. We base this on solid fundamentals, as mine supply is likely to contract while industrial and jewelry demand should increase. Our expectation of gold strength is supportive, as are an accommodative Fed policy, negative interest rates, and geopolitical risks. Investment demand, which has been strong this year, may cool but should remain positive.

Tighter supply is price supportive: After steady production increases for more than a decade, mine supply looks set to decline this year and in 2017. Higher prices may contribute to increased scrap supply, but near-term available material may be limited. Tighter supply is a key factor in our mildly bullish outlook for silver.

Strong investor demand should stabilize, while physical demand should grow: The robust pace of build-ups in ETF holdings to record highs and net long positions on the Comex are unlikely to last. High gross long positions on the Comex could trigger liquidation and curb prices. HSBC’s modestly positive global economic forecasts imply a mild recovery in industrial demand; jewelry offtake has been improving and price sensitive coin and bar demand is strong, but may cool later this year and in 2017.

Bullish on gold: We expect gold prices to average USD1,275/oz in 2016. We also anticipate that oil and other commodity strength will be supportive for all the bullion markets.”