San Antonio, Texas — Silver prices will likely average in the high $15/oz level during the summer but rise to the upper $16 level later in the fall, analyst Philip Newman of UK research company Metals Focus said Sunday.
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"In Q4, we expect silver to rise, Newman told an audience at the International Precious Metals Institute meeting in San Antonio. "One of the reasons is that seasonally, this is a strong time for gold in India and China, and that should help silver as well. "
Average silver prices in 2015 are likely to be about 15% lower than last year, but rise about 10% in 2016 as the uncertainty over interest rates fades with the expected gradual increase in US rates, he said.
Near term, silver has continued difficulty in breaking away from gold, which faces strong headwinds, the most important of which is a decision by the US Federal Reserve to raise interest rates, Newman said.
Those interest rate increases are likely to be very gradual due to their negative impact on US household debt levels.
"So it does seem very likely that when increases do happen, the rate that it will happen will be very gradual. And that will be very good for precious metals," he said.
Another headwind for gold is the possible departure of Greece from the Eurozone and its potential impact on bond yields of southern European neighbors, Newman said.
As a result, the gold-silver ratio is unlikely change much from the current 70-76: 1 over the remaining months and into early next year, he said.
Silver has been supported by US institutional investors, as well as retail investors in India, Newman said, although there are indications that consumers are returning to gold jewelry as gold prices decline.
Silver demand in India rose to record levels last year, and is up 20% in the first five months of 2015 from the same year-ago period, Newman said.
The demand was driven by import restrictions placed on gold by the Indian government, as well as the decline in the rupee.
The weakness of the Indian currency also triggered demand for equities, investment products jewelry and silverware.
"It is a very exciting market. The question is for this year, can India continue to absorb these volumes of silver?" Newman said.
"I think that on a year-on-year basis when we finish in December, the numbers will look quite different, and one reason is that [the import] of more than 35 million oz in one single month last year seems unlikely (to be repeated)," he said.
India imported more than 35 million oz of silver in both October and November last year, but those levels have since fallen substantially, he said.
"That seems very unlikely to be repeated. But even if the market does back off, it will still be against a record high level."
Indian demand can also help buffer silver when gold prices decline, he added.
US investment demand for silver has also fallen from record levels last year, but remain very strong, Newman said.
Rangebound silver prices, a decline in gold prices, lack of volatility in the silver market and the sizeable quantity of previous purchases have helped slow US investor interest, Newman said.
US jewelry purchases however, remain strong, even as buyers of gold jewelry return to the market with declining gold futures.
The US is the largest buyer of silver jewelry in the world.