Silver likely to underperform gold in 2008

Over the next one year, silver is expected to underperform gold following surge in production and lower fabrication demand, according to the interim silver market review released by GFMS, a UK-based precious metals consultancy, on Wednesday.

Demand will remain key to silver's price prospects in 2008, the report said, adding that fresh investment in silver fabrication over the next one year could move the metal's price higher.

According to its forecast, the prices of silver will move in the range of $13.20-$16.50 per ounce in the next 12 months.

The average price in the first ten months of the current year was up 17 per cent (y-o-y) at $13.16 per ounce. During the same period, the metal remained volatile in the Indian market and went as low as Rs 16,800 a kg and to a high of Rs 20,715 a kg. While the investment pattern remained positive, the net investment demand was less strong than in 2006.

Although investors drove silver prices higher during the current year, the move, GFMS said, followed the resilience in fabrication demand coupled with the absence of an overall supply growth. Mine production for the year is forecast to be up by 725 tonnes, a rise of 3.6 per cent.

This is mainly due to higher production from Chile, Bolivia and Mexico. However, the decline in production in Canada, Peru, Russia and Kazakhstan could partially offset the increase. On the other hand, scrap supply could see a slight fall on the back of reductions in the recovery of silver from photographic wastes, as switching to digital photography is putting brakes on silver consumption in photography.

On the demand front, the year 2007 may not paint a good picture. Except the industrial sector, which is believed to register a full year gain of 5 per cent, all other consuming sectors have proved dull so far.

According to the review, fabrication demand is forecast to be more or less unchanged on last year's level around less than one per cent. Jewellery and silverware fabrication, GFMS estimated, will fall slightly in 2007.

Moreover, with fast digitalisation, photographic use of silver is expected to drop by close to 10 per cent in the year. Coin minting too has dropped in 2007 compared with last year, it said.