After several years of gradual decline, are silver prices due a rebound? One headwind remains: silver, like gold, is a monetary metal held as a hedge against inflation and turbulence. The likelihood of higher American interest rates makes precious metals, which pay no interest, less appealing.
On the other hand, says Capital Economics, “oversupply in the silver market has been one of the key factors depressing prices in recent years” and on this front, the picture is becoming more bullish. Mined supply is set to decline by 4% this year after 12 years of increases.
Meanwhile, around half of the demand for silver stems from industry, with America, Europe and China accounting for around two-thirds of this. Industrial production in these economies should muster enough momentum to ensure a 3% increase in overall industrial demand, nibbling away at stockpiles. And India and China should continue to drive jewellery demand.
The upshot of all this, reckons Capital Economics, is that there is scope for a recovery in silver prices to more than $20 an ounce by the end of the year, up from around $16 today. Investors brave enough to take a punt on this extremely volatile metal can do so with the ETFS Physical Silver ETF (LSE: PHAG).