The catastrophic drop in the gold price was one of the main headline makers in 2013. Signs of a recovering global economy, and expectations of Federal Reserve monetary tapering, forced the yellow metal price 27% lower over the course of the year.
But the outflows from safe-haven precious metals also smashed the silver price last year, the metal collapsing by an even-more cataclysmic 35% during the 12-month period to current lows around $19.50 per ounce. Still, in my opinion, this sustained price weakness represents a great buying opportunity as I expect a stunning rebound sooner rather than later.
In particular, I believe that rising global activity, helped by an accelerating recovery in the US, should drive industrial demand for silver higher. And I reckon that the iShares Silver Trust (NYSEMKT: SLV.US) exchange-traded fund is a great way to gain exposure to an improving metal price.
StanChart feeds the bears
News this week that Standard Chartered had slashed its forecasts for the industrial and investment metal was music to the ears of silver bears. The broker now anticipates an average price of $18.38 an ounce for the current year, down heavily from a previous estimate of $23.13.
StanChart has raised questions that industrial off-take may not be strong enough to match declining investor demand at the present time, with the appeal of precious metals harmed by a still-difficult macroeconomic environment and subdued inflationary concerns.
Critically, however, Standard Chartered opined that “despite the bearish outlook near-term, it is worth noting that both commodities could be bottoming out in 2014 as markets rebalance.” The broker expects silver to gallop to average $21.63 and $23.50 per ounce in 2015 and 2016, driven by accelerating global growth and rising jewellery demand from emerging markets.
… but are near-term fears overplayed?
Personally speaking, I believe that the broker’s view in the immediate term is overly-pessimistic, and that robust global GDP growth should drive silver demand skywards in 2014.
Indeed, the International Monetary Fund (IMF) commented in recent days that it plans to revise higher its global growth forecasts by the end of the month, helped in part by greater certainty for the US economy this year. The IMF said back in October that it expected expansion to clock in at 2.9% and 3.6% in 2013 and 2014 respectively.
Meanwhile, I also believe that although concerns over surging inflation have proved unfounded, a continued backdrop of accomodative monetary policy by central banks should keep liquidity flowing, a key support for precious metal prices.
Much was made of the Fed’s decision to scale back monthly bond purchases by $10bn to $75bn in December, but with benchmark interest rates forecast to remain at record lows for the foreseeable future — combined with continued loosening by banks across the globe — should boost store-of-value silver this year and beyond.
