I have already written and posted my projections for silver price in 2012 along with an analysis for the major events that affected its development during 2011. In this post I will examine the potential outcomes of silver price during 2012 along with my speculative estimation of the probability of each scenario occurring. This price forecast should give you some perspective as to where silver market is headed in 2012.
During 2011 silver price started off strong and even reached at one point over 55% bump before plummeting down precipitately within days. By the end of the year silver price didn’t do much and ended slightly below its initial starting price.
So what is the forecast for silver prices in 2012?
There are four prime scenarios I think we should consider:
- Silver price ranging between $30 and $35 by the end of the year (probability of this option – high): This scenario, in my opinion is most likely. It means silver price will end nearly the same price it had reached by the end of 2011. One of the driving forces for silver prices was speculation around the depreciation of USD due to the QE plans, low interest rates, low return on other investments including US treasuries and stock markets and the rally of gold price. The strong relation between gold and silver may have prompted inventors to prefer silver over gold because the former is only less than one fortieth the price of the latter. Despite these factors, silver didn’t do much by the end of 2011; since there are smaller chances of another stimulus plan by the Fed, and the US stock markets and US economy are starting to recover, then silver price is likely to remain at its place. Finally, there is always the possibility that CME will intervene in the markets by raising margins on silver as it did in the past. This potential wet blanket will also keep silver market from heating up;
- Silver price ranging between $20 and $27 by the end of the year (probability of this option – low): This scenario, in my opinion is less likely. The recent pledge of the Fed to keep interest rates low until 2014 and the economic perils the US and Europe is facing in regards to their budget deficits and debt will help keep the price of silver high in 2012;thus a sharp drop by the end of the year is less likely;
- Silver price ranging between $35 and $40 by the end of the year (probability of this option – low): This scenario is possible even though is less likely. This means silver price will rise by 16-30% by the end of year. Silver has performed exceptionally well in 2010 as it rose by 84%. During 2010 the demand for silver for investment purposes grew by 47% compared with 2009 and reached 178 million ounces – the highest level in over a decade; the demand for silver for fabrication rose by only 12%, but its demand in ounces was nearly unchanged compared with a 10 year average. This means most of the growth in price didn’t come from shifts in demand and supply (in fabrication) but from a rise in demand for silver as an investment, i.e. speculation. Therefore, the sharp growth in the demand for silver for investment might keep silver prices high and even pressure them up (especially if the Fed will issue QE3). But a sharp rally is less likely for the reasons listed in part 1;
- Silver price ranging between $40 and $50 by the end of the year (probability of this option – very low): This scenario is least likely among other scenarios for the same reasons I have listed in scenario number 3; if there will be another quantitative easing plan, the progress of the US and EU economies will slow down and the CME won’t intervene in the metals markets then this possibility will become more viable.
This analysis should be taken with a grain of salt as I have only voiced my opinion and tried to give you some perspective as to what should we expect to see in the silver market in 2012. Next time on gold price forecast for 2012.
For further reading: