Precious metals like gold and silver have been performing quite poorly of late due to the continued strength in stock markets. The white metal has been beaten down significantly in 2013, underperforming broad stock markets by a pretty wide margin.
In fact, the white metal has plunged nearly 30% in the first nine months of 2013, pushing the commodity to fresh lows. Many feel that this weakness could continue too, especially if investors continue to look to stocks for exposure and shun commodities.
Uncertain Global Trends
Silver prices will likely remain under pressure in the short term due to sluggish fundamental factors in the global markets. The U.S. economy is improving but China, which is considered the biggest industrial fabricator after the U.S., is still seeing sluggish economic growth.
Additionally, tepid industrial demand is impacting the price of the bullion as about 50% of the metal’s total demand comes from industrial applications. Further, the growing speculation over the early end of the Fed’s stimulus program (QE3) is lowering the demand for silver and silver ETF holdings (read: Commodity Slide Hits Silver ETFs).
Based on these negative fundamentals, Morgan Stanley slashed its 2013 and 2014 silver price forecasts by 19% and 15%, respectively. Another firm, Bank of America Merrill Lynch, also cut its silver target by 25% for 2013 and warns that the price could fall further below $20 per ounce in the coming months.
All these factors suggest a bearish trend for the white metal at least for the short term.
However, the long-term prospects look tremendously bullish given the growing demand from emerging products, China’s introduction of silver futures and high fabrication demand, which make up roughly 80% of silver demand.
Even the demand for traditional products like silverware and jewelry have been held steady during these hard times.