GFMS says investors' silver stocks to increase quite substantially

GFMS Wednesday forecast that over the next 12 months silver prices will range from $13.20 to $16.50 ounce.

NEW YORK - 

In a speech to the Silver Institute Wednesday in New York City, GFMS Chairman Philip Klapwijk said that investment demand for silver "has rebounded very strongly" in the fourth quarter.

He forecast that overall, investors' silver stocks will increase "quite substantially" in 2007.

Nevertheless, Klapwijk said silver investment demand is more speculative, and viewed more as a commodity and less of an investment than gold, which enjoys more of a monetary status. However, he added the silver ETF "has been a pretty good investment for private investors; so good that the ETF may have taken investment dollars from silver bullion and coins.

While GFMS forecasts that investment demand will be strongly positive, net investment demand still is weaker than that during 2006. Although ETF holdings increased 23 million ounces from January through October of this year, net long silver positions on the COMEX declined during the same period to a low average of 246 million ounces, according to Klapwijk.

GFMS believes that there will be more reliance on investment demand over the next year to sustain the price of silver or make it higher. A price range of $13.20 to $16.50/oz has been forecast by the consultancy. Klapwijk forecast that prices will remain volatile.

Although investors have driven silver prices higher this year, the trend has been underpinned by fabrication demand. However, GFMS believes that the outlook for industrial demand is "looking negative in 2008 due to the potential impact of global slowdown." In fact, Klapwijk forecast a significant decline in fabrication demand next year.

Meanwhile, GFMS said government sales of silver have been almost halved this year with nothing coming out of China, while India's government sales have ended. Klapwijk said the one remaining big silver selling country is Russia.

Mine production is forecast to increase by 23 million ounces (3.6%) this year with growth being driven by higher silver production from La Coipa in Chile, initial output from San Cristobal in Bolivia, a rebound at Cannington in Australia and higher production in Mexico. The outlook for next year is a 7% increase in international mine production, mostly coming from a full year's output in San Cristobal, initial production at Coeur d'Alene's San Bartolome silver mine in Bolivia, and start-ups at Goldcorp's Penasquito project and the Delores project, both in Mexico.

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