PDATE: Silver Spike To $15 Is 'very Possible,' Says GFMS
21:11 EST Tuesday, November 14, 2006
SAN FRANCISCO (Dow Jones) -- Hedge-fund hunger could drive silver back up to $ 15 an ounce in the next few months, even as demand from fabricators of the precious metal is forecast to drop this year, said GFMS Ltd. late Tuesday.
The London-based researcher, whose report feeds a market eager for more data on the metal, forecast demand from fabricators will fall just over 3% this year from last year's revised level.
But investment demand, which has driven prices higher in the past year, should keep rising and could drive silver back up to $15 an ounce over the next few months, it said.
"Investment demand remains the main driver of the price," said GFMS analysts in a statement.
It anticipates "significant price volatility," but over the next few months it said a spike to $15 an ounce is "very possible." Investment demand could top a net 2,500 metric tons this year, it said.
The firm released its midyear report to media in conjunction with a presentation at the Silver Institute's annual dinner in New York Tuesday night.
For the first ten months of the year, spot silver prices average $11.24 an ounce in London trading, a 58% rise from a year ago. The metal closed at $12.85 an ounce at the London fixing on Tuesday, according to spot prices posted on GFMS' Website.
Speculative buying, mainly by hedge funds ahead of the launch of a silver exchange-traded fund, dominated investor demand early in the year, the consultancy said.
Heavy profit-taking plus investment in the fund roiled silver markets after Barclays Global Investors launched iShares Silver Trust (SLV) on April 27, said GFMS.
Shares of the silver ETF represent 10 ounces of the metal held in a vault.
Silver prices have dropped sharply since May, but they've been climbing in recent weeks.
Strong investor appetite contrasts with a drop in physical demand for the metal.
Industrial demand, which was strong over the first half, has slowed recently. GFMS expects industrial demand to rise nearly 1% this year, to a new record level, but fall in 2007 "under the impact of much slower growth in global industrial production" and a weaker year for electronics.
Photographic use of silver should drop by nearly 11% this year, cooled by the trend away from print photography and toward digital photography.
Jewelry and silverware fabrication demand should drop 8% this year. The problem? Record local prices in India. Plus, Indian consumers increasingly favor investing in bullion rather than high-carat jewelry, GFMS said.
Supply to edge up
On the supply side, GFMS said it expects mine production to rise by 0.6%, or 125 metric tons, in 2006. But next year, it sees a 500 metric-ton gain, with strong growth forecast into 2008.
Scrap supply is expected to be flat this year, partly because a large share of silver scrap supply is from recycled photographic products.
Government sales should rise modestly, it said.
(END) Dow Jones Newswires
11-14-06 2110ET
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