Silver Futures Market Analysis and Outlook

SHANGHAI, Apr. 25 (SMM) – The China Securities Regulatory Commission approved April 24 the launch of silver futures contracts on the Shanghai Futures Exchange. Specific launch time will be decided based on the market situation and the progress made in the preparatory work.

Stronger Say over Pricing

Adding of silver futures into existing copper, aluminum, lead, zinc, gold and steel futures in China is a key step for Chinese businesses to gain a stronger say over commodities prices. Though China is the world’s largest silver producer and consumer, silver has been priced based on London and US silver prices in both domestic and overseas trade, causing distorted reflection of the silver supply and demand scenario in China.
 
The silver futures contracts to be launched in Shanghai is not a complete abandon of global silver pricing, though, but will be priced in consideration of both overseas and Shanghai silver prices, to more accurately present the Chinese silver market and offer Chinese businesses stronger say over silver prices.

Silver Futures Prices Forecast

Similar to base metals prices, silver prices also have a very high degree of internationalization, London spot prices are the world’s silver pricing Centre. It is not difficult to find from historical data that correlation between domestic and London silver spot prices is very high. In addition to international prices, domestic prices is another benchmark in setting domestic futures prices, which include mainly Shanghai Gold Exchange’s T+D silver prices and SMM silver prices. In the short term, Shanghai silver futures prices are expected to move in line with London silver spot, but domestic spot trading may cause certain difference. After tracking spot prices at home and abroad, SMM observation reveals that the silver price ratio remains at 6.6-6.8, estimates of initial silver futures prices therefore are at RMB 6,400-6,600/kg.

Price Trends Forecast

Although the global economic recovery is slow, the overall operation is smooth. Driven by emerging countries, major indicators of the United States also started to improve. European debt is also moving in a positive direction. It can be said that the global real economy has stepped out of the haze of financial crisis and systemic risk is quite unlikely to be renewed. Therefore, commodity prices, especially prices of silver closely related to the industrial sector would find strong support from the real economy to run smoothly. However, there are also uncertainties, including high unemployment rate in the United States, sovereign debt crisis in Europe, emerging markets inflation risks and China’s currency policy shift to slow economic growth. High level of market awareness for silver means the silver futures will have more financial relevance, in addition to its industrial relevance. The global economic recover and investment opportunities will likely push silver futures prices higher in the future. Investors should also bear in mind that opportunities always come with risks, especially in the financial derivatives sector.