G. Chandrashekhar

More likely to follow gold's lead

Mumbai , Nov. 15

Investment demand has been driving silver prices higher and could potentially take the market back to the $15 an ounce level in the next few months, according to GFMS Ltd.

For the first 10 months of this year, the average silver price basis the London fixing was $11.24, up no less than 58 per cent year-on-year.

Investment demand remained the main driver of the price and has raised silver to well above the equilibrium level that would likely prevail in the absence of investment, the London-based precious metals consultancy said in its interim Silver Market Review released on Tuesday.

ETF

Commenting further on prices, the report pointed out that the silver ETF (exchange traded fund) has continued to attract investors.

An efficient vehicle, therefore, exists if and when investor demand surges again, GFMS argued adding that at some point the ETF could start to represent an overhang, although arguably this risk is moderated partly because of the ETF's broad rather than narrow ownership. Industrial demand that represents half of total fabrication could be vulnerable to a slowdown in world GDP growth or a downturn in global electronics cycle next year.

Although mine production growth will start to come into play in 2007 and a substantial rise has been forecast, GFMS believes that silver is more likely to follow gold's lead (higher) than base metals direction (lower) over the next year.

The consultancy expects significant price volatility, and over the next few months at least sees a bias to the upside. Despite massive price rise in the current year, fabrication demand is forecast to fall by a mere 3 per cent while a modest growth in mine production and scrap is expected.

© Copyright 2000 - 2009 The Hindu Business Line