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Silver seen shedding gains on weak investor demand

Bnamericas Published: Friday, June 03, 2016
Silver seen shedding gains on weak investor demand

Silver will shed its recent gains over the coming year, with the metal vulnerable to fragile investor demand, Credit Suisse head of commodities strategy Stefan Graber told BNamericas.

The company expects prices to hold steady at around US$16/oz over the next three months, before dropping to US$14/oz over 12 months, Graber said.

While silver prices largely follow those of gold, silver is more dependent on investors as production outstrips physical demand, resulting in a structural surplus.

"We just don't see consistent investor demand in the market to absorb that surplus," Graber said in a telephone interview.

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Investor buying was behind silver's recent recovery, with the metal rising from a six-year low of US$13.58/oz in late January to US$17.86/oz three months later. Prices have since fallen to around US$16/oz following increased expectations of a US interest rate rise in June.

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"Investor demand helped prop up the price in Q1, but the moment investors stop adding new positions then the upward pressure fades quite quickly, and if unwinding starts to kick in that's where weakness is increasingly likely," Graber added.

Long exposure remains stretched despite cutbacks in the last couple of weeks, with option markets biased to the bullish side, and vulnerable to further bouts of weakness, he said.

Silver closed at US$16.10/oz in London, up 12 cents. Graber also expects gold to fall to US$1,100/oz over the coming 12 months, as a result of possible US interest rate rises and weak physical demand.

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