Silver analysis and forecast for Q4 2015

Nov 3, 2015 - 7:29 AM GMT
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Each Quarter FastMarkets and Sucden Financial produce an analysis and forecast report on the precious and base metals – The Sucden Financial Metals Reports, Oct 2015.

Below is the Silver report for Q4, to read the full report covering all the metals in pdf form click here.

Subscribers have access to these reports before they are published through the research tab in FastMarkets Professional.

Silver – Little price gain despite short-covering

Summary

Significant selling pressure in the summer pushed silver to fresh 2015 lows in August before they rebounded somewhat in September. We attribute the steep fall in prices to disappointing industrial demand, especially in emerging market (EM) economies, and mixed investment demand. While silver could strengthen in the near term from these current weak price levels, we do not expect a sustainable rally because the Fed may initiate its tightening cycle at some point this year.

Silver price chart 2012-2015

 

Silver supply and demand 2011-2015

Overall trend – On the supply side, mine production, the largest source of silver supply, may start to decline this year because prices are nearing the largest producers’ all-in sustainable cost of production. Scrap supply, the second-largest source of supply, is likely to continue to fall because weak spot prices may prompt merchants to hold onto their metal. On the demand side, silver industrial demand, which accounts for 50 percent of total demand, could be weaker than expected largely due to the slowdown in EM countries, especially China. Investment demand is likely to be mixed. We expect ETF investors and speculators to sell silver more aggressively due to an increasingly unsupportive macro environment but coin and bar sales and jewellery demand may continue to pick up in a low-price environment.

Silver chart - ETF holdings and spot price

ETF investors were net sellers in the third quarter at 236 tonnes after being net buyers in the second at 89 tonnes. We expect the pace of investor selling to accelerate in the fourth quarter if US monetary policy normalisation results in a stronger dollar and higher real interest rates.

Silver - Commitment of traders - Spec positionioning on COMEX

Money managers steadily liquidated their long positions while they built up massive short positions early in the third quarter, which has resulted in a short-covering rally since the start of September. But we do not expect the rally to be sustainable because spec sentiment remains fairly weak.