Next Silver Bull: Industrial Demand


"Growing demand for silver likely to put a squeeze on available supply."

After breaking past the $19 level and climbing to its highest point in four weeks, silver suffered a huge drop Monday to close at $18.72/oz. The Chinese currency story had wetted speculators appetites for risk, leading to selloffs in safe-haven positions. As the dollar gained, silver traded mostly sideways with gold Tuesday, closing at $18.80. Wednesday, silver started the trading day with a >$0.40 drop as gold lost a few bucks.

Despite recent favorable supply/demand fundamentals, silver looks to be following the price trajectory of gold. However, recent analyst forecasts show silver prices gaining further ground over the next few years.

Merrill Lynch analysts recently reported confidence in precious metals price performance in the medium to long term, seeing "further upside" for silver prices with an average of $21/oz. in 2012.

"Our positive view on gold and silver prices is heavily influenced by the current macroeconomic environment," say the analysts who believe the rise in money supply brought on by central banks' monetary policies, soaring sovereign debt and the potential for depressed GDP growth will have a "significant impact" on silver and gold.

Eugene Weinberg of Commerzbank AG says silver may reach as high as $21/oz. by year-end, climbing to as high as $23 in 2011.

While investor demand for silver is credited for such a bullish outlook amongst analysts, a new report from VM Group/Fortis Bank Nederland shows industrial demand, especially from new uses and increased demand from China, will have a significant impact on silver prices going forward.

Growing global demand for silver from both the investment and the industrial markets is likely to put a squeeze on available supply. No doubt the long term fundamentals for silver are "more convincingly bullish that they have been for some time," notes the Silver Book.

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