Silver, the best-performing and most volatile precious metal of the past year, may rebound from a bear market as investors bet on growth in developing nations and an extended European debt crisis.
The metal could average $38 an ounce this quarter and rise to $42 by the end of next year, compared with the $30.37 it closed at last Thursday, according to the median in a Bloomberg survey of 11 analysts.
China is driving consumption of the precious metal most used in industry. Demand is also coming from investors looking for an alternative to cash and gold.
“Prices now look relatively cheap to where they have been recently,” said David Wilson, an analyst with Société Générale SA and the most accurate silver forecaster tracked by Bloomberg in the two-year period through June. “The backdrop is still very supportive for gold, and we think that silver will leverage off the back of that.”
SOLAR PANELS
Silver slumped as much as 48% after reaching a 31-year high of $49.85 in April. Used in everything from jewelry and coins to solar panels and film, the commodity returned more than any other major precious metal over the past year, with a gain of 34%.
Gold rallied 24% as the MSCI All-Country World Index of stocks fell 3.9%.
Although silver has swung from losses of 2.8% to gains of 104% over the past 12 months, it is still on track for its highest-ever annual average.
The metal tumbled 28% last month, the biggest drop since 1980, as equities and commodities slumped on signs that growth was slowing. The Standard & Poor's GSCI gauge of 24 commodities retreated 12%, the largest decline in almost three years.
Economists tracked by Bloomberg are more bullish. The global economy will expand 2.86% next year, accelerating from 2.77% in 2011, according to a composite of regional forecasts.
Industrial and numismatic demand for silver fell almost 11% in 2009, Morgan Stanley estimated, but prices still rose 49%. Consumption was underpinned by investment, with holdings in exchange-traded products backed by the metal's jumping 48%.
Combined assets in ETPs have risen 5.1% to 17,573 metric tons since mid-July, equal to almost nine months of mine production, the data show.
That may not be enough to erode a glut. Global supply of silver has exceeded non-investment demand since 2008, and this surplus will persist until at least 2016, Morgan Stanley predicted.
“The fundamentals still look very weak,” said Suki Cooper, a commodities analyst at Barclays Capital. “The downside still looks much more vulnerable, given that we're not seeing the same strength in industrial demand that we have seen previously, and given that mine supply still looks very healthy.”
