HSBC Sees Bigger Silver Supply Deficit, $18.75 Avg. Price In 2017

By Kitco News
Thursday December 01, 2016 10:43

(Kitco News) - HSBC looks for the polish to return to silver in 2017, forecasting a 132 million-ounce supply deficit and average price of $18.75 an ounce.

Like gold, silver fared well for most of 2016 before a recent downward spiral after the U.S. elections, with a widespread perception that the Federal Reserve is shifting toward tightening interest rates, HSBC said. The subsequent rise in the U.S. dollar and equities undercut bullion.

“In our view, any resurgence in investor uncertainty or ‘safe-haven’ demand, possibly based on geopolitical concerns, will bolster silver in 2017,” HSBC said late Wednesday, forecasting a price range for the year of $16 to $21.50.

“We also base our expectations on solid fundamentals, as mine supply is likely to contract while industrial and jewelry demand should increase. Our expectation of gold strength is supportive, and we believe a tighter Fed policy is largely priced into the market.”

The bank’s foreign-exchange strategists also anticipate a mild correction lower in the U.S. dollar against the euro, which should support silver, HSBC said.

HSBC’s $18.75 average 2017 silver forecast is down from its previous $19.25 outlook. The bank looks for $19.25 silver in 2018 and $19.50 in 2019. As of 10:20 a.m. EST, Comex March silver was at $16.47 an ounce.

HSBC projected a silver supply deficit of 116 million ounces this year, then 132 million in 2017.

“After many years of steady increases, we anticipate a reduction in mine supply in 2016 and 2017,” HSBC said. “Scrap supplies are likely to stay at present weak levels. Physical demand from industry has been weak, but is likely to make a modest recovery in 2017, while photovoltaic demand is robust. Low prices should trigger resurgent coin, bar and jewelry demand in 2017.”

HSBC projected mine supply will fall to 872 million ounces next year from 887 million this year, and silver-scrap supply will fall to 140 million ounces in 2017 from 145 million this year. Industrial demand is seen rising to 550 million ounces next year from 538 million in 2016. Jewelry demand is forecast to climb to 288 million ounces from 258 million.

Total supply is seen at 1.032 billion ounces in 2016 and 1.027 billion in 2017. Total demand was forecast to rise to 1.159 billion ounces next year from 1.148 billion this year.