Monex Precious Metals

1-800-444-8317

Thomson Reuters GFMS Silver Outlook for Next Three Months:

Date of Release: 4th May 2012

IMPORTANT NOTE: The following is for informational purposes only and was developed by Thomson Reuters GFMS. It does not take into account the investment objectives, financial situation or particular needs of any particular person. Information is from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Opinions and estimates are the judgment of Thomson Reuters GFMS and are subject to change without notice. Distribution of this information does not constitute agreement with, or an endorsement of, the views expressed. Obviously, future outcomes are impossible to predict with certainty. Investors should obtain advice based on their own individual circumstances and understand the risks before making any investment decisions.

Silver’s thin trading range in april was mainly due to a lack of direction in gold prices, while a stronger greenback also weighed on dollar-denominated commodities. indeed, the sharp decline in futures turnover led the cMe Group to cut margins on comex silver futures (for the second time this year) in an attempt to boost liquidity after a narrow price range tempered trading interest.

Looking ahead, our view remains broadly unchanged compared with the previous report. as the gold price will struggle to gain momentum, we would caution that further weakness in the silver price is likely to emerge in the short term, although the fall should be rather muted. in addition, as economic and financial conditions in industrialised countries will remain challenging over the next three months, we would argue that risk appetite will remain subdued, as investors will continue to increase their allocations to cash and other low-risk assets. related to this, investor sentiment will remain vulnerable to a further slowdown in the chinese economy, which is likely to create downward pressure for the industrial metals. investors’ cautious attitude towards industrial outlook is not just based on sentiment. although industrial offtake improved as the first quarter progressed, this compares with an extremely weak fourth quarter and in general there appears to be little sign of industrial offtake having gained significant momentum so far this year.

As outlined in last month’s report (and World Survey 2012), weak industrial demand contributed to a rapid increase in silver bullion stocks held at comex warehouses, with inventories rising by over 20% so far this year to a 15-year high of 142 Moz by end-april. furthermore, the metal’s other supply/demand elements are providing little support, as mine production is set to rise for the tenth successive year in 2012 to a fresh record, leaving the silver market on course to register another substantial surplus. With little interest from the official sector, investors will once again be called upon to absorb this surplus, which will therefore leave the price susceptible to swings in investor sentiment.

Having said that, as mentioned in the gold section, given the persistence of extremely low interest rates, the ongoing sovereign debt crisis and future risks of high inflation, investor interest in precious metals will remain in place for some time to come. as such, silver is likely to be firmly supported at the $28-29 level, particularly given the extent to which speculative positions had already been reduced by end-april. Once the gold price starts to rebound, probably in June, silver is likely to follow suit, although the silver price may well be capped below the $33-34 range.

Additional Information

• Key Silver Market Developments
• Silver Market News