January 5, 2013

GFMS: Silver Prices to Climb 38% in 2013

The world's most respected precious metals consultancy, Thompson Reuters GFMS, came out last month with its 2013 forecast for silver prices.

After being bearish on silver prices over the past few years, GFMS has come around and predicted a good year for silver investors in 2013, with gains as high as 38%.

Philip Klapwijk, global head of metals analytics for Thomson Reuters GFMS, said "a rebound in investment demand stemming from continuing loose monetary policies is expected to drive silver prices towards and possibly over $50 during 2013."

Klapwijk said buyer interest may not match that of 2011, but it will rise compared to 2012.

"We wouldn't be surprised also if silver's gains outpaced gold's, not only as the usual result of lower liquidity but also as memories of early 2011's painful losses (in silver) continue to fade," said Klapwijk.

Here's why silver could be the precious metals star of 2013.

Silver Prices in 2013

Overall, GFMS says, demand for silver in 2012 broke down as follows: 43% from industrial users, 30% from investment demand, 21% from the manufacture of jewelry and silverware, and the remainder from photography and producer de-hedging, or closing out positions that had been used as a hedge.

In 2013, GFMS sees industrial demand being a bigger factor of higher silver prices.

Another is, of course, investment demand. Through Nov. 23, holdings in silver exchange-traded funds totaled 623 million ounces. That's up 47 million ounces from the 2011 year-end figure.

Besides "the persistence of ultra-low interest rates" driving investment demand, Klapwijk also cites demand from emerging markets as a factor.

"In China, for example, jewelry demand is growing at a double digit rate," he said.

GFMS also expects further producer de-hedging - unwinding positions used as a hedge - next year. This continues the trend from 2012, when GFMS says producers de-hedged roughly 10 million ounces of silver. Klapwijk said "producers continue to deliver into outstanding positions faster than they are replaced."

Money Morning Global Resources Specialist Peter Krauth is even more bullish than GFMS.

Krauth said he's expecting silver prices - at $32.55 in New York today (Thursday) - to climb to $54 an ounce in 2013.

Among the reasons Krauth cited for higher silver prices include the re-election of U.S. President Barack Obama, the gold/silver ratio and demand from both investors and industry.

How to Cash in On Higher Silver Prices

Several ETFs give investors a chance to try to cash in on higher silver prices.

One of the best ETFs is the iShares Silver Trust (NYSE: SLV).

With some $5.5 billion in assets, SLV is the world's largest silver-backed ETF, using JPMorgan Chase & Co. (NYSE: JPM) in London as its custodian. SLV shares, which represent approximately 1.0 silver ounce each, are easy to buy and sell through your brokerage account.

Investors should also consider the Sprott Physical Silver Trust ETV (NYSE: PSLV). Sprott actually allows investors to redeem the units in the exchange for physical silver bullion. The physical bullion that backs the fund is held in Canada - away from the potentially grasping hands of Washington, but still in a market that protects property rights and that's easy for you to physically access.

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